The Hindu Business Line : Gold may test support levels

SPOT Gold prices tumbled lower mostly on year-end liquidation and dollar's corrective rally against the euro which was short-lived. This liquidation was partly due to gold's inability to rise on safe-haven buying after the Indian Ocean tsunamis and fears of physical selling due to the calamitous events in Asia.

Also, gold prices struggled 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. Spot gold prices tumbled lower after breaking some crucial technical levels. Near-term support at $ 440 gave way in a volatile session. Lack of follow-through buying momentum above $ 445 levels can be seen as an important reason for failure to press higher. Prices have also broken down below the rising channel range over the past several months, which is bearish. 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. This could be an ideal level for bottom picking keeping the underlying bullish trend in mind.

Resumption of the bullish trend can however, 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 $441.21 and the medium term 25-day EMA is at $441.50. Therefore, look for prices to test the support levels. Supports are at $435, 430.50 and 428. Resistances at $ 440, 445 and 447.50 respectively.

(The author is associated with the Multi Commodity Exchange of India Ltd. 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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