The Hindu Business Line : Spot gold may move sideways

SPOT gold prices are struggling to surpass key technical levels even as the Euro moved to new highs on the back of continued dollar weakness in thin trade muted by the holiday-shortened week.

With the dollar struggling to press higher the persistent turn higher in the crude oil prices served to underpin gold.

Safe-haven buying is expected to emerge on dips positioning ahead of the New Year. The recent rise to 16-½-year peaks in gold were driven by euro strength against the dollar due to persistent worries about the US current account deficit, but sentiment was still overwhelmingly bearish for the dollar and bullish for gold.

Spot gold prices are languishing at the $438-443 range after it hit a low of $431.50 early this month on profit-taking. Lack of follow-through buying above $440 levels can be seen as an important reason for failure to press higher. As mentioned earlier, corrective pullbacks are being used to position longs again. Near-term support is at $435 followed by key support in at $430.50, which happens to be the past double top resistance level.

Only an unexpected break here can take it to $424.65 on the downside, close to the Fibonnaci 38.2 per cent retracement point for the move from $385-457 as seen in the chart above. Resumption of the bullish trend can be confirmed only after a daily close above $447.50. Trigger for bearishness will be on the break of $423.

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. Last week's fall to $431.25 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 $440.95 and the medium term 25-day EMA is at $441.40. Therefore, look for prices move in sideways range and test the support levels. Supports are at $438, 435 and 430.50. Resistances at $ 445, 447.50 and 450 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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