The Hindu Business Line : Gold may test resistance, dip

SPOT gold prices rose sharply higher registering a 18-year high, bolstered by high crude oil and gasoline prices as well as worries about the US economic growth post hurricane Katrina.

More supply in the coming months, less jewellery demand at higher prices and rising interest rates resulting in higher carry cost in the US could affect investment demand and could put a ceiling on gold prices.

Though markets are expecting a test of the psychological $500 levels, caution should be exercised by investors on getting excessively bullish at current levels, as prices are technically overbought and investors have the tendency to get trapped at high prices.

Spot gold prices rallied higher in line with our broad expectations, but the correction seems to be eluding us, which is also a sign of strong bullish trend in motion. Psychological resistance at $475 will be near-term resistance point. Move below $463.65 is expected as part of a corrective rally in the coming weeks.

Stronger support is at $452 and as long as this level caps any decline, spot gold prices could test the technical objective at $490 or even higher towards the psychological level at $500. Favoured view is, to expect corrective dips to $458-460 hold well, for a rally higher again. As per our recent wave counts, the third wave ended at $458 followed by a fourth wave correction in the form of wave A to E, which ended at the recent low of $418 and the fifth wave appears to have begun from there.

A move below $445 will diminish our bullish expectation and signal the beginning of a larger correction lower. RSI is in the heavily overbought zone indicating a downward correction to take place. The averages in MACD are still above the zero line of the indicator suggesting bullishness. The short-term 8-day EMA is at $459.85 and the 34-day EMA is at $446.05. Therefore, look for spot gold prices to test the resistance levels and correct lower.

Supports are at $468, 463.65 and 458. Resistances are $at 475.50, 478 and 483.

(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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