The Hindu Business Line : Spot gold may head lower

SPOT gold prices tumbled lower on expected lines due to a rebound in the dollar against the major currencies and the prospect of the International Monetary Fund selling bullion from its reserves for Third World debt relief.

There was no support from the trade too with physical demand being meagre, owing to long holidays in many Asian countries. Markets are bracing for the trade deficit data, which is expected to narrow down in December after two straight months of record highs. The dollar started rallying last week despite the payroll data, coming in at the lower end of market expectations after Federal Reserve Chairman, Mr Alan Greenspan, said market forces and tighter US fiscal policy should stabilise and may cut the US current account gap.

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.

Spot gold prices are currently trading in the $410-416 range. As mentioned before, price structures were not favouring an up move, and therefore expected prices to edge lower.

A pullback towards $420-21 looks likely, which is the falling channel resistance point. Preferred view is to look for one more dip below the recent low of $410.50 and then head higher from there.

Resumption of the bullish trend can be confirmed only after a daily close above $435. We would like to stick with our previous wave counts and only a move below $405 will force us to rework it.

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.

Recent fall to $417 is possibly the corrective sub-wave of the fifth wave impulse we are currently in.

RSI is in the oversold zone now indicating an upward correction to take place. The averages in MACD are 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 $416.95 and the medium term 25-day EMA is at $422.50. Therefore, look for prices to test the resistance levels and head lower again.

Supports are at $ 412, 410 and 408. Resistances at $ 417, 420 & 423 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 of MCX. 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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