The Hindu Business Line : Spot gold may consolidate

GOLD was the only loser among the precious metals category with others like silver, platinum and palladium soaring to record highs. The dollar's ability to sustain and stage a comeback, even after a poor jobs data last week followed by another bearish data on trade deficit on Wednesday, possibly signals the markets' perception of a dollar strengthening in the near term.

The dollar withstood news that the January US trade deficit widened to a record $43.06 billion. Increasing budget and trade deficits coupled with lower interest rates lifted the Euro/dollar pair to new highs last month, when the traditional dollar assets moved to hard assets like gold.

Gold took in stride the renewal of the agreement by European central banks to limit bullion disposals for another five years, starting in September. On Monday they announced a deal to sell not more than 500 tonnes a year through September 2009. That was up slightly from the 400 tonne annual limit in the current pact.

Gold moved higher once again testing the resistance levels. This is the second time the $405 levels have displayed strong resistance now leaving the scope for a test of the 200-day moving average at $386. The channel seen in the chart shows good resistance at $409 and support at $383.

This is the broad range we could see gold prices to trade and a break on either side should give a clear direction. Our preferred view at this point will be to look for a test of the support trend line in the channel, which will complete the corrective cycle and a bigger move higher from there.

We still stick to the view of a corrective pattern unfolding with a lower target. The current move is a corrective A-B-C of the fourth wave in the making not an impulse fifth wave as expected earlier with targets near the $383-385. Once, the target is met we would be looking for signs of reversals. RSI is still in the neutral zone indicating that it is neither overbought nor oversold showing minor signs of a positive divergence.

The averages in MACD are still below the zero line of the indicator indicating bearish ness. Prices are lower than the short-term 9-day EMA at $399 and the medium term 25-day EMA is at $401.80.

Look for prices to consolidate and test the support levels. Supports are at $395,390 & 385. Resistances at $401.80, 405 & 410.50 respectively.

(The author is a Mumbai-based analyst who tracks the global commodities markets. This analysis is based on the historical prices movements and there is risk of loss in trading.)

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