The Hindu Business Line : Gold prices may consolidate

GOLD prices moved sharply higher overnight after instability in Iraq intensified. The dollar, which was firm due to a surprisingly higher jobs data, released last Friday, lost its vigour on renewed euro strength. The news of a sharp rise in the US employment bolstered the chances of an impending raise in the US interest rates in due course.

Any decline in the US dollar versus most of its major rivals proved the main source of lift for gold prices, rendering dollar-denominated gold increasingly cheaper in other currencies.

Another prevalent view after the last week's European central bank (ECB) meeting, is a possibility of ECB lowering interest rates which would render the US currency relatively more attractive compared to the euro on a yield or return basis.

Gold dropped quite sharply from the high of $430-$415 following the employment data release and has bounced back despite the rosy picture which has been painted about the dollar.

Gold prices moved higher as per our expectations. With resistance seen at the previous top at $430 levels, and a sharp fall seen from there suggests that we could be seeing a double top pattern in the making. This pattern could fail on the break of $431 and a good rally ahead to the next crucial resistance at the long term rising channel point at $442 can be seen.

Support is quite strong at $415 and a daily close below this level will be seen as a bearish sign. As mentioned in our earlier up dates, we are in the fifth wave impulse right now and a failure to go above the third wave top could see a sharp correction unfold from here. The price movements need to be watched closely in the coming week for any such signs.

RSI, after being in the overbought zone has now corrected lower and is currently in the neutral zone. The averages in MACD are well above the zero line of the indicator and only a break below the line will signal a trend change.

Prices are higher than the short- term 9day EMA at $419.95 and the medium term 25day EMA is at $414. Look for prices to consolidate and test the support levels. Supports are at $420, 415 & 405. Resistances at $428, 430.50 & 442 respectively.

(The author is associated with the Multi Commodity Exchange of India Ltd. (MCX). The views expressed in this column are his own and not of his employer. This analysis is based on the historical price movements and there is risk of loss in trading.)

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