The Hindu Business Line : Spot gold may rise higher

SPOT gold prices corrected lower after news of an IMF report predicting a sharply lower growth rate for the Euro zone. Markets also watched Federal Reserve Chairman, Mr. Alan Greenspan, and his testimony to the congress.

He gave a mixed reading on the US economic outlook. His testimony before the House of Representatives Budget Committee suggested using spending cuts to deal with the deficit. He said the combination of America's aging population and soaring health care costs posed the biggest budget risk.

Markets are expected to move in a choppy range till the release of the important jobs report due on Friday. Though the undertone for gold remains strong and the dollar is expected to provide further direction, one factor that could hold gold back is the possibility of European central bank gold sales.

Spot gold prices are higher in line with our broad expectations. There have been corrective moves and prices are expected to find support below the $430 levels followed by stronger support at $425.

As mentioned in the previous update, indicators were displaying overbought conditions, and due to this, a good correction took place. As long as $423-24 holds the downside, we can expect spot gold prices to test $438-442 in the coming weeks. 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 $410.50 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 above the zero line of the indicator suggesting a bullish reversal. Only a crossover of the averages below the zero line in the indicator will signal bearishness again. Prices are above the short-term 9-day EMA at $431.90 and the medium term 25-day EMA is at $428.

Therefore, look for prices to rise higher after testing the near-term support levels. Supports are at $430.25, 428 and 425. Resistances at $435, 438 and 442 respectively.

(The author is associated with 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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