The Hindu Business Line : Gold may test resistance levels

GOLD prices continue to rise higher on the back of a dollar sell-off hitting a 20-day high. News that US April durable goods orders fell 2.9 per cent knocked the dollar to a 20-day low versus the euro. The euro rose higher making dollar-priced commodities more affordable in Europe. Safe-haven buying on the back of terror alerts issued in the US will also support gold in the coming weeks.

The US Attorney General, Mr John Ashcroft, said Washington had credible intelligence that al Qaeda was plotting a big attack inside the country or on US interests in the coming months. Federal Reserve could now possibly think of delaying an expected interest rate rise, despite voicing concerns about rising inflation. Growing concerns that record high oil prices were adding to inflationary pressures was also drawing more investors to gold, a traditional hedge against inflation.

Gold has been torn by the recovery in the dollar on expectations that US interest rates will soon be raised from 45-year lows and geopolitical concerns that have contributed to the surge in oil prices above $41 a barrel. Trading in precious metals could be subdued before Friday's early holiday close and the US Memorial Day holiday on Monday.

Gold prices have corrected up wards as per our expectations. As mentioned in our previous update a break above $383 saw gold headed to the channel resistance seen in the chart at $390. The double top pattern we identified close to $430 levels is could near its completion stage. Crucial resistance now lies near the 200-day moving average point now at $ 392.

A daily close above $395 will be the first signs of resumption in up trend. However, only a break of the $405 level will be a genuine confirmation for the same. The fibonnaci 50 per cent retracement support is at $372 near which a good pullback has been noticed. 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 now believe that wave "B" has begun and therefore are cautiously optimistic of the current up move.

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 to be intact. 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 $387.25. Look for prices to test the resistance levels. Supports are at $387, 383 and 380. Resistances at $392, 395 and 400 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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