The Hindu Business Line : Spot gold may head lower

GOLD prices recovered Wednesday after a weaker-than-expected US economic data saw the dollar coming under pressure. The dollar backtracked after a report showing the US durable goods orders rose a 0.7 per cent in June, against market expectations for a 1.9 per cent rise.

Earlier in the week the Conference Board's July reading on confidence jumped to 106.1, overshooting expectation in the range of 102.0-103.0. Long gold positions were unloaded on Tuesday when expectations of higher interest rates were reinforced by the strong data. However, it is too early to get unduly bullish on the dollar only based on the interest rates as the given size of the US twin deficits situation has not yet improved substantially. Markets will also have a close watch on oil prices for the inflationary trend. Market's focus will now be on the US gross domestic product report due Friday, which will be a key test for the recent dollar strength.

As expected, gold prices broke out of the rising channel it has been moving past three months. Intermediate support is at $385. Resistance will be strong between $393-395, which also happens to be the 200 day exponential average point and the rising channel trend line point.

A range between $380-410 is seen in the bigger picture. A clear trend could emerge only after this range is broken either ways. As we have been maintaining, only a break below $380 will see gold headed to its recent lows and possibly even lower to $365-368 levels.

As per Elliot wave analysis, we have seen a failure of the fifth wave impulse at $433 and a sharp correction took place to $371, which is wave "A". Wave "B" then started from $371 and possibly ended at $408.75. Wave "C" looks to have begun targeting lower levels, which is still our preferred view. This view holds good as long as prices do not close above the $415 levels. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator suggesting bearishness. Prices are below the short-term 9-day EMA at $394 and the medium term 25-day EMA is at $396. Therefore, look for prices to pullback into the rising channel range initially and then head lower again. Supports are at $385, 380 and 371. Resistances at $ 393, 395 & 398 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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