The Hindu Business Line : Correction likely in gold

SPOT gold prices headed higher helped by a weaker dollar, rising oil prices, instability in Iraq and possible uncertainties ahead of the US Presidential elections on November 2, reaching a six-and-half month peak. Oil charged back up to $55 a barrel as a fresh fall in heating oil stocks stoked fears over winter supply.

Gold prices are moving in lines with our expectations. As we have been maintaining, as long as $408-410 level holds, we can expect this trend to continue heading higher. Spot gold prices have tested the important resistance at $425, which is the rising trend line resistance point. A correction can be seen from current levels failing which we can expect prices to break the $433 level and head towards another important resistance point at $450.

Only an unexpected break of $405 will see spot moving lower towards psychological support at $397-400 or even lower. As per our recent Elliot wave counts, 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 $425, and a move above the previous top of $433, will make us abandon this count and look at the current move as a fifth wave impulse instead.

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 $418.55 and the medium term 25-day EMA is at $415.30.

Therefore, look for prices to test the resistance levels and subsequently correct lower. Supports are at $420, 415 and 410. Resistances at $ 428, 430 and 433 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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