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Friday, Jun 18, 2004

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Spot gold prices to consolidate


GOLD prices headed lower as the volatility in the dollar kept prices in a eight to ten dollar range moving both ways as the markets now focuses on the US interest rates more closely ahead of the FOMC meeting at the end of the month.

The dollar retreated earlier in the week as the inflation figure released on Friday fell within market expectations and did not show a higher reading, which the market was eagerly looking forward to. Overall, the CPI rose 0.6 per cent against market consensus of 0.4-0.5 per cent. The CPI data gave rose to speculation that Fed will not be as aggressive in raising interest rates as thought earlier. This benefited gold, which reached the $390 levels only to find strong resistance there.

This was followed up by the US industrial output data, which was bullish for the dollar. US May industrial production rose 1.1 per cent, much above market forecasts for a rise of 0.8 per cent. This strength in the economic activity implies that gold is losing its safe-haven appeal against the dollar.

Gold prices moved both ways with the underlying trend remaining bearish. Break of the current price range of $382-390 either side will show a clearer direction from here with the chances of a break lower looking strong. Also, prices came very close to testing the 200 day moving average yet again now at $391.

Unexpected break below $382 will set the tone for a test of the low at $371 and possibly head further lower to $365 levels. Therefore, as long as $380-382 holds there are still chances of a move higher.

As per Elliot wave analysis, we have seen a failure of the fifth wave impulse at $433 and a sharp correction took place which is wave "A". This will be followed by an upward correction in the form of wave 'B". We now believe that wave "B" could have gotten over at $398.

A move below $380 will confirm the beginning of wave "C" in the daily picture targeting lower levels. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are now below the zero line of the indicator suggesting bearishness.

Prices are lower than the short-term 9-day EMA at $387 and the medium term 25-day EMA is at $388.55. Therefore, look for prices to consolidate and head lower. Supports are at $382, 380 and 371. Resistances at $385, 389 and 395 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 MCX. This analysis is based on the historical price movements and there is risk of loss in trading.)

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