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Friday, Oct 29, 2004

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Spot gold may correct lower


SPOT gold prices corrected lower after a drop in oil prices and a surprisingly stronger dollar, which lead to good profit taking in the precious metals. Recently strong safe havens like gold fell out of favour and the dollar and equities rose as oil prices skidded after a higher-than-expected build in crude stocks last week.

Gold futures hit a 16-year high on a closing basis on Monday supported by a weaker dollar, rising oil prices and uncertainty over the presidential elections. Markets are expecting a closely fought presidential election, which is helping prop up gold as an alternative investment.

Dollar appreciated briefly against the major currencies after a better than expected consumer confidence data, but it could not follow through which led to value buying in precious metals. Markets will now closely monitor the moves made by gold in response to the dollar and oil for further clues.

Gold prices moved in line with our expectations testing the resistance levels and then correcting lower from there. Resistance was strong at $430 levels slightly above the rising trend line resistance point. A pullback towards $418-420 can be expected. Believe this move to be a corrective one as spot prices could again build a base here before trying to retest the highs at $430 or head even higher.

Only an unexpected break of $405 will see spot moving into bearish territory. We were looking at the current move from $371 as a corrective irregular wave "B" in progress and a wave "C" to follow. As per our recent count the third wave ended at $433 followed by a fourth wave correction to $371 and the current move as a fifth wave as it shows characteristics of an impulse wave.

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 $423.65 and the medium term 25-day EMA is at $418.75. Therefore, look for prices correct lower and find support at key support points. Supports are at $420, 415 and 410. Resistances at $ 425, 428 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

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