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Gnanasekar. T

SPOT gold prices headed higher buoyed by supply concerns and higher crude oil prices, which supported gold as an inflation hedge. Waning confidence in European economic growth and unity, and demand possibly outstripping supply has made the precious metal a better alternative to the dollar.

In recent years, gold has mostly gone up as the US dollar has fallen against the euro, making gold cheaper for European buyers. But in recent months that link has weakened. Physical market though remains sluggish as gold sales in India, the largest consumer was low due to higher prices and absence of festivals or weddings.

Internationally, there is plenty of fund and institutional interest in gold presently as a hedge against fixed income, which has helped gold prices rise steadily higher in spite of a weakening Euro. The only factor, which could depress prices, would be the possible rise in US interest rates at the end of the month. However, bullion's decoupling with the dollar in recent weeks, the interest rate rise may not be of much consequence.

Spot gold prices rallied higher, as expected, and the question now is whether one can look forward to sustained bullishness. The weekly charts have started indicating a beginning of a possible up trend in the making. The long-term channel support point at $415-17 has held well, as seen in the chart above, and a bullish triangle pattern has also been broken on the upside. Prices are also above the important 200-day EMA at $424 a crucial support.

Initial support will be seen at $435 and as long as the long-term channel support point at $423-424 holds well, we can now expect spot gold to rally higher and test the recent highs at $458 or even higher. We will now have to re-consider our wave counts, as prices moved above $438.50 on the upside and continue to stay in that vicinity.

As per our recent wave counts, the third wave ended at $458 followed by a fourth wave correction to $410 and the fifth wave appears to have begun from there. RSI is in the overbought zone now indicating a correction to take place. The averages in MACD have gone above the zero line of the indicator both in the daily and weekly charts suggesting a bullish reversal. The short-term 8-day EMA is at $434.55 and the 34-day EMA is at $427.80. Therefore, look for spot gold to correct lower initially and then rise higher subsequently.

Supports are at $435, 433 & 430. Resistances are at $442, 446 & 458.

(The author is associated with the Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not necessarily that of his employer. This analysis is based on historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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