The Hindu Business Line : Spot gold may rise, then dip

SPOT gold prices recovered due to a slightly firmer Euro and renewed physical interest at lower levels. Physical buying and bargain hunting seems to limit gold price weakness currently. Physical gold demand is expected to increase as the Indian March-May marriage season begins in the largest consumer of precious metals in the world.

However, market participants would not want to chase gold prices higher unless the dollar resumes a clear downtrend. Appetite by funds for precious metals has also waned in the recent weeks due to the outlook for higher US interest rate hikes.

Gold has historically got a boost from high oil prices as it is used as an inflation hedge. Meanwhile, gold players are awaiting word on whether the International Monetary Fund will get enough support to prompt sales of some of its gold reserves to fund debt relief for the world's poorest countries.

Spot gold prices have found support near the $423 levels as per our expectations. Strong resistance is expected at $428-430 being a crucial support level in the past. While below $429.50, expect spot gold prices to consolidate in the current range of $423-429 and then head lower again. A spike above $431 will be bullish in the near-term, but looking at the structures, we believe one more dip towards $420 cannot be ruled out before we see a clear up trend.

A daily close below $433 negated our overall bullish expectations. This will be an important barrier for spot gold to cross in the near-term. And as long as $435 caps the upside, we can expect gold prices to slide lower towards $418, being the weekly channel support point as seen in the chart above.

We would like to stick to 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, since it shows characteristics of an impulse wave.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator in the daily chart signalling bearishness, but weeklies are still suggesting bullishness to be intact.

Only a crossover of the averages below the zero line in the indicator will signal a clear bearish reversal. Prices are below the short-term 9-day EMA at $426.90 and the 34-day EMA is at $429.45. Therefore, look for gold prices to head higher towards resistance levels and then head lower again.

Supports are at $424, 422.50 and 418. Resistances at $429.50, 431.50 and 433 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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