The Hindu Business Line : Gold may fall after rising

SPOT gold prices continued to move in a broad range as the markets started to digest the impact of the FOMC decision, which came in line with market forecasts. Gold prices recovered from two-week lows after the Fed's decision.

Positive factors that support gold prices currently are: Fears of aggressive interest rate hikes diminished temporarily; peak marriage season demand in India underpinning physical prices; and short-term technical strength in the Euro.

Negative Factors are: The determination of Fed to increase interest rates consistently in the year, which will enhance the overall yield advantage against gold and a possible Chinese revaluation, which could help control the ever-increasing US trade gap with China. Though short-term strength is seen in gold, negative factors outweigh positive factors in the medium to longer-term.

Spot gold prices moved in line with our expectations. Short-term up-side bias can be seen. Strong resistance will be at $435-38 levels. A long-term triangle pattern is seen in the chart above, which is bullish in nature. However, a daily close below $422-423 will open the downside initially towards $405 or even lower.

Our favoured view currently is to look for prices to dip lower after testing the near-term resistance levels. As mentioned in the previous update, 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.

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 in the daily chart signalling bullishness an important reason for our up side bias now. Only a crossover of the averages below the zero line in the indicator now will signal a bearish reversal.

Prices are above the short-term 8-day EMA at $431.05 and the 34-day EMA is at $430.61. Therefore, look for gold prices to head higher initially towards the resistance levels and then fall lower.

Supports are at $428.50, 426.00 and 423. Resistances at $431.50, 435 and 437.50 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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