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Gnanasekar.T

SPOT gold prices finally corrected lower and when it did, it caught the markets by surprise as stops were triggered on the break of some crucial support levels.

Markets had been expecting a correction after seeing new highs almost daily in the past two weeks sparked by concerns about the falling dollar. Also contributing to the massive correction was the year-end profit-taking by markets participants, but this does not necessarily look like the end of euro appreciation story.

Continued jawboning from European officials added to pressure on the rising Euro in recent days.

Markets will now focus on the next week's FOMC meeting for further clues on the direction for the dollar.

The current pullback throws an opportunity to for the bulls to position longs again.

However, two important levels to keep in mind would be $435 followed by $430.50, and the latter happens to be the Fibonnaci 38.2 per cent retracement point for the move from $385-457 as seen in the chart above. An unexpected break here can, however, take it to $424.65 on the downside. Preferred view is to look for the crucial support at $430.50 to hold for another test towards the $450 levels and above.

Only an unexpected break of $423 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. Wednesday's fall is possibly the corrective sub wave of the fifth wave impulse we are currently in.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. 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 $449.10 and the medium term 25-day EMA is at $444.15. Therefore, look for prices to test the support levels and push higher again. Supports are at $435, 430.50 and 425. Resistances at $ 445, 450 and 458 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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