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Friday, Dec 03, 2004

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Spot gold may test resistance level


SPOT gold prices continues to head higher as the dollar gets battered making 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, signifying the strong undercurrent against the dollar.

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. Gold remained strong, in its status as a hedge against political and economic uncertainty, due to inflationary fears.

Spot gold prices are moving higher without any decent correction or profit-taking. We have also crossed the psychological $450 level without a major pullback, which makes us believe that we could be headed towards the next resistance at $460. As seen in the chart above, a potential target in the near-term comes at $473, which is also the rising channel trend line resistance point. Support should now be seen at $448-450 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. 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 $449.53 and the medium term 25-day EMA is at $440.90. Therefore, look for prices to test the resistance levels and hopefully correct lower subsequently. Supports are at $448, 445 and 440. Resistances at $457, 460 and 465 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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