The Hindu Business Line : Spot gold may test support level

SPOT gold prices tumbled lower as the dollar rebounded against the major currencies as market participants returned from the New Year holidays. The important question in the minds of investors now is whether it's a corrective phase or it is a reversal in fortunes for the dollar.

Statements from Fed on Wednesday suggest that they could raise interest rates aggressively this year. Dollar would certainly stand to gain as the yield advantage goes in its favour. However, the deficits are the main worrying factor and that needs to be watched closely.

US economic data from here on till the FOMC on February 1is expected to provide further clues for direction. Though the dollar looks corrective in the short-term, outlook for the medium-term remains weak as the deficits continue to soar and geo-political tensions continue. There are still plenty of reasons to buy gold with uncertainty about the outlook for the US economy, overall dollar weakness and demand growing from the launch of US exchange-traded funds. Current fall in prices could be the ideal opportunity.

Spot gold prices are currently languishing at important support levels. Near-term support is at $425 being the Fibonnaci 38.2 per cent retracement level for the move from $385- 457 as seen in the chart above. Daily close below this level should take it to the next important support at $420 or even lower towards $417. This could be an ideal level for bottom-picking for the medium-term. Important resistance is at $430-32 levels.

Resumption of the bullish trend can, however be confirmed only after a daily close above $440. Favoured view for the week is to look for a break of $425 lower, as long as $433 caps the upside. As per our recent wave counts, 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.

Current fall to $425 is possibly the corrective sub-wave of the fifth wave impulse we are currently in. RSI is in the oversold zone now indicating a pullback to take place. The averages in MACD have gone below the zero line of the indicator suggesting bearishness. Only a crossover of the averages above the zero line in the indicator will signal a clear bullish reversal.

Prices are below the short-term 9-day EMA at $433.90 and the medium term 25-day EMA is at $438.10. Therefore, look for prices to test the support levels and head higher again. Supports are at $ 425, 421 and 417.60. Resistances at $ 428.50, 433 and 435 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.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
All for survival

Rubber moves in a narrow range

Spot gold may test support level

AP Govt to take up Rs 850-cr Stage II of Vamsadhara project

NDDB's mega milk project for Karnataka

Oilseed crushers to discuss trade barriers

Chicken, egg prices post fresh gains

Marketfed likely to procure pepper from next week

Integrated farming will benefit small land holders: Digvijay

Global seafood show put off

FAO seeks $26 m for tsunami victims