The Hindu Business Line : Spot gold may consolidate

GOLD prices recovered well gaining from a weaker dollar and the decision by the Federal Reserve to leave interest rates steady at 45-year lows for some more time thereby keeping the cost of investing in zero-yield gold affordable.

However, in the FOMC meeting on Tuesday the Fed signalled that it would start tightening monetary policy at a measured pace. This dashed any hopes of a sharp rise in interest rates in the offing. Markets will now focus on Friday's April employment report.

Last month's 308,000 jump in March non-farm payrolls was the first sign of a strong recovery in the Labour market, which was a major concern. Also factored into gold purchases this week was the surge in the price of crude oil toward $40 a barrel, which was last seen in October 1990 after Iraq invaded Kuwait.

Gold is typically used in portfolios as a hedge against inflation. Gold Prices hit seven-month lows last week, on comments by the Chinese Premier in an interview with a newswire on the need to tighten its fast growing economy, which has seen China emerge as the leading buyer of commodities.

Gold prices headed against our expectations. A good recovery to the important resistance at $393 was seen, which is the 200-day moving average resistance point. A daily close above $398 will be the beginning of first signs for a retest of the high at $430.

However, only a break of the $405 will be the key to resumption of up trend in gold. This is also a falling trend line resistance point. Failure to move strongly above this level will risk the possibility of a test of the recent lows close to $380 levels.

Good support will be seen between $385-387 levels. Prices are hovering close to the 200-day EMA now at $393, which shows the market's inability to decisively go higher. Last week gold prices came close to the important support at $374, a Fibonacci 50 per cent retracement point.

As we have maintained, this correction will throw a good opportunity to do some bottom picking, as the bigger picture has still not shown a reversal yet. As per Elliot wave analysis, we have seen a failure of the fifth wave of this impulse and a sharp correction which took place. We would be looking for signs of a new impulse to begin to higher levels.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator suggesting bearishness. Only a move above the zero line in the indicator will signal a reversal in trend. Prices are higher than the short-term 9-day EMA at $390.50 and the medium term 25-day EMA is at $400.25. Look for prices to consolidate and test the resistance levels. Supports are at $387, 380 and 374. Resistances at $395, 398 and 405 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 that of his employer. This analysis is based on the historical price movements and there is risk of loss in trading.)

More Stories on : Technical Analysis | Gold & Silver

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
AIBP: States urged to be cost-conscious

Dharapuram ryots hit by poor quality onion seeds

Fading prospects

Rubber price firm as rains limit raw material arrivals

Mills stumped by SC ruling on cane pricing

Assam Co aims for NSE listing

Spot gold may consolidate

Will investors favour gold securities?

Platinum-palladium price gap to narrow: GFMS study

Soya well placed meet vegoil, animal feed demands: FAO

Cardamom steady on buying support