The Hindu Business Line : Spot gold may consolidate

GOLD prices rose higher as concerns about trade deficit weakened the dollar and lifted the precious metals. However, prices could not sustain at the highs and closed well below the $380 level.

Gold hit a seven-month low earlier this week as the jobs data came in surprisingly higher surpassing market expectations. The Commerce Department earlier said the March trade deficit widened to $46.0 billion from $42.1 billion in February. With oil prices at a 13-year high above $40 a barrel, gold is favoured as a hedge against inflation.

Direction for precious metals is still very much dependent on the currencies. With skepticism on the sustenance of dollar to recover strongly in 2004 due to the bloating trade deficit and continuous trouble brewing in Iraq would make the market look for opportunities to do bottom picking at the current levels rekindling the safe haven buying for gold.

Gold prices started its slide, 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 are moving in line with expectations. Prices tested the support levels before bouncing from there sharply. The double top pattern we identified close to $430 levels is quite clear now and could near its completion stage.

A channel seen in the chart indicates support at $371 and the next resistance would be at $393. This is also the 200-day moving average resistance point. A daily close above $395 will be the beginning of first signs of resumption in up trend.

However, only a break of the $405 will be the confirmation for the same. This is also a falling trend line resistance point. The fibonnaci 50 per cent retracement support is at $372 near which a good pullback has been noticed. Resistance would be strong at $385 followed by the important level at $393.

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 impulse and a sharp correction took place, which is wave "A".

This will be followed by an up ward correction in the form of wave "B". We would now be looking for wave "B" to begin from the current levels. RSI is in the oversold zone now indicating that an up ward correction is due. 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 $384 and the medium term 25-day EMA is at $393. Look for prices to consolidate and correct upwards. Supports are at $372, 368 and 361. Resistances at $380, 385 and 393 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.)

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