The Hindu Business Line : Gold may head higher

GOLD prices were unchanged on Wednesday with the trading range moving slightly higher amid uncertainty over the US Fed's expected monetary tightening initiative at the end of the month, which coincides with half-year end.

The dollar is not expected to do much until the Fed news comes through. A 25-basis point increase is something, which the markets have already factored in. A surprise 50 basis points rise could become hugely beneficial for the dollar. This strength in the US economic activity implies that gold would lose its safe-haven appeal against the dollar.

However, a safe-haven status is serving gold well currently with the handover of power in Iraq at the end of the month again coinciding with the Federal Open Market Committee (FOMC) meet and half year end. Markets will also look forward to the fourth quarter GDP figures and May durable good orders on Thursday for providing further clues of the economic recovery.

Gold prices have moved higher against our expectations. However, it is only the trading range which has moved higher compared to the ten dollar range seen last week.

The other important thing to note would be the break of the important 200-day exponential average at $391. This is a positive sign.

Nevertheless, with a crucial week ahead, which will set the direction for prices in the coming months, let us examine some of the important technical factors. A flag pattern is seen which is bullish. Important resistance will be the psychological $398-400 levels. The indicators and moving averages have also turned bullish.

But, if the psychological levels prove difficult to go through once again, it will end up in a double top pattern which will ensure a fall from here. Only an unexpected break below $382 will set the tone for a test of the low at $371 and possibly head further lower to $365 levels.

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".

A move above $405 will negate of previous wave "B" count getting over at $398.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have moved clearly above the zero line of the indicator, which is one of the reasons for an upward bias now. Prices are higher than the short-term 9-day EMA at $391.50 and the medium term 25-day EMA is at $390.15.

Therefore, look for prices to head higher as long as $382 holds. Supports are at $391, $385 and $382, while resistances at $387, $400 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.)

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