The Hindu Business Line : Spot gold may head lower

SPOT gold prices continued to fall lower in line with our expectations. Key US economic data on payroll numbers and trade deficit surpassed market expectations and sparked a rally in the dollar denting bullion demand.

The dollar gained after a much narrower-than-expected US trade deficit in March tempered concerns about external financing problems for the economy. Trade gap contracted to $54.99 billion in March from a revised $60.57 billion in February well below market expectations.

A wide US trade gap is normally a bearish signal for the dollar because the currency is being exchanged for foreign currency that is used to buy foreign goods. Gold, however, seems to be holding well in light of the strength in the dollar, possibly due to a vibrant physical market presently. Medium term outlook does not favour a rally in gold.

Spot gold prices moved in line with our expectations. Strong resistance will be seen now at $428-430 levels. A daily close below $422-423, which is also the rising trend line support point, will open the downside initially towards $410 or even lower.

Our favoured view currently is to look for prices to dip lower and all rallies being sold. Only a daily close above $438 will negate our bearish view on spot gold prices. We will continue to maintain the wave counts as in the previous update, till we see a clear break of $443 on the up side.

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 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 have gone below the zero line of the indicator in the daily chart signalling bearishness. Only a crossover of the averages above the zero line in the indicator now will signal a bullish reversal. Prices are above the short-term 8-day EMA at $428.30 and the 34-day EMA is at $429.75. Therefore, look for gold prices to head lower.

Supports are at $426, 423 and 421. Resistances at $428, 431.50 and 435 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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