The Hindu Business Line : Spot gold may correct lower

SPOT gold prices continue to head higher as the dollar made record lows against the Euro in particular and against other major currencies as well in spite of the US economic figures coming in at the higher end of market expectations.

The dollar's recent drop has lifted gold by improving buying power of investors holding currencies other than dollar. Geo-political tensions and record deficits also have helped prop the market higher towards recent highs. Even the batch of economic data released Wednesday on jobless claims and housing starts failed to ease the heavy selling because markets are convinced that the US favours a weak dollar policy.

First-time claims for the US unemployment benefits shrank and ongoing claims fell to a 3-1/2 year low. And US new home sales rose by 0.2 per cent, more than forecast for October. Gold remained strong, in its status as a hedge against political and economic uncertainty, due to inflationary fears.

Spot gold prices tested the resistance levels as per expectations but a decent correction is still not in sight. We are now very close to testing the psychological $450 level from where some reaction can be expected, failing which the climb could extend towards $460 levels.

Support should now be seen at $440-443 levels. As mentioned the underlying trend is quite strong and every dip and correction would be treated as a buying opportunity. Only an unexpected break of $423 will see spot moving further lower. An Elliot target for the current move is at $454 followed by another target at $465. 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 overbought zone now indicating a correction to take place soon. 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 above the short-term 9-day EMA at $444 and the medium term 25-day EMA is at $435. Therefore, look for prices to test the resistance levels and correct lower subsequently. Supports are at $445, 440 and 438. Resistances at $ 450, 454 and 460 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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