The Hindu Business Line : Gold may test resistance level

SPOT gold prices headed higher due to a weaker dollar. With concerns lingering in markets about the threat of inflation to the US economic growth, gold prices seemed to have found some safe-haven interest. The inflation data released this week has further bolstered this view.

Physical buying and bargain-hunting are adding support. Sentiment for gold looks to have changed currently, and if dollar continues to weaken, we can expect the resumption of the bullish trend in gold again.

Spot gold prices headed lower initially and then rallied higher against our expectations. Important resistance at $430 has been taken out and this will again tend to contain any downside attempts. As mentioned earlier, a spike above $431 will be bullish in the near-term.

A long-term triangle pattern is seen in the chart above, which is bullish in nature. We can expect gold prices to edge higher towards $438-40 levels now, being the daily falling channel resistance point.

Caution needs to be exercised on getting excessively bullish based on the current up trend and only a daily close above $442.50 could be the trigger for a rally towards the recent high at $446 or even extend higher to our earlier long-term objective at $475. We will continue to maintain the wave counts as in the previous update, till we see a clear break of $443.

As per our recent wave counts, the third wave ended at $433 followed by a fourth wave correction to $371 and the fifth wave also looks to have ended at $457.75. This was followed by a corrective move wave "A" to $410.50 followed by a wave "B" pullback to $446.70.

Currently we are tracking a wave "C" and as per equality target should test the psychological $400 levels. Positive divergence is noticed in both the indicators, where prices made a lower low not confirmed by the same in the indicators.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator in the daily chart signaling bearishness. Only a crossover of the averages above the zero line in the indicator will signal a clear bullish reversal. Prices are above the short-term 8-day EMA at $429.70 and the 34-day EMA is at $429.30 and the convergence of the two averages can be interpreted as an additional sign of bullishness.

Therefore, look for gold prices test the resistance levels in the coming week.

Supports are at $433, 430.50 and 426. Resistances at $ 435, 438 and 442.50 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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