The Hindu Business Line : Spot gold may consolidate

SPOT gold prices corrected lower after reaching a six-month peak on the back of a weaker dollar, a less-than-expected rise in the US September payrolls and steadily climbing crude oil prices.

The data bears significance as it comes four weeks away from the US elections indicating how the labour market is faring. Weakness in the dollar, another record oil price at $54 a barrel, instability in Iraq and uncertainty ahead of November's US presidential election have been supportive factors for the 6 per cent rise in gold prices in recent weeks. Soaring energy costs could spread in the economy and undermine the dollar's purchasing power.

Gold prices hit the important resistance at $423 levels as per our expectations. Profit-taking was seen and support at $410 levels has held subsequently. As mentioned in the previous week's update, as long as $408-410 level holds, we can expect this trend to continue heading higher again towards $423 or even higher to the previous high at $430.

Initial resistance will now be at $418-420 and the strength of the current rally will depend on whether prices can surpass this level successfully. Only an unexpected break of $405 will see spot moving lower towards psychological support at $397-400. Nevertheless, we still maintain our bearish outlook for the medium-term. We need to alter some of our wave counts internally, however the bigger picture still remains unchanged.

As per our recent count we are in a correction in the bigger picture after the fifth wave failed at $433 unable to cross the third wave top at $431.50 convincingly. A corrective wave "a" began from there and ended at $371. This was followed by a wave "b", which looked to have topped out at $414.

But the current move towards $420 again, suggests that we could still be in wave "b". Confirmation of a wave "c" lower will now come on the break of $400. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. It is also showing a minor negative divergence, and therefore a correction can be expected.

The averages in MACD are still above the zero line of the indicator suggesting bullishness. Only a crossover of the averages below the zero line in the indicator will signal a bearish reversal. Prices are below the short-term 9-day EMA at $417.25 and the medium term 25-day EMA is at $413. Therefore, look for prices to consolidate and test the support levels. Supports are at $413, 410 and 408. Resistances at $ 416.50, 420 and 430 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. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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