The Hindu Business Line : Gold may break out of range

GOLD prices are nudging higher towards the upper side of the range, which it has been stuck for a while now with the direction of the dollar remaining an important factor yet again.

The weaker dollar lowered the price of precious metals for overseas investors, which is currently in a corrective mode. Gold hit a one-month high on Wednesday with violence in Iraq, bombings in Madrid and a spike in oil prices, which reached new highs. This would lead to higher inflation and in turn will make gold a safe haven metal a favourite investment again.

However, the geo-political factors played a lesser role in the markets this time with gold showing little reaction to the bombings in Madrid. The US Federal Reserve on Tuesday left the US interest rates unchanged as per market expectations, with fading prospects for any dollar recovery in months to come.

Earlier in the week, gold was influenced by a better-than-expected data on the February US industrial output that rose 0.7 per cent, while the capacity utilization rate rose to 76.6 per cent.

Gold is nearing the important resistance levels and did not correct lower as per expectations. The near term resistance at $405 level has finally been broken and is currently very close to the channel resistance at $409.25. Important levels to watch for a confirmation of a resumption of the bull run would be at $410 initially followed by $417, which is also a fractal point.

As mentioned last week we are seeing a broad range for gold prices and a break on either side should give a clear direction. Our preferred view still remains 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.

A close above $417 will signal a beginning of another impulse wave rally. RSI is still in the neutral zone indicating that it is neither overbought nor oversold.

The averages in MACD are still below the zero line of the indicator indicating bearish ness. Only after the averages cross over the zero line, a trend reversal will be signalled. Prices are higher than the short-term 9-day EMA at $401.53 and the medium term 25-day EMA is at $402. Look for prices to break out of the range it has been moving. Supports are at $406, 401 and 398. Resistances at $409.25, 411.50 and 417 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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