The Hindu Business Line : Downward tweak likely in gold

SPOT gold prices retreated on Wednesday on profit-taking, after prices earlier spiked to a new 18-year peak on investment demand. Gold, which is seen as a safe-haven investment and an inflationary hedge has risen 8 per cent this year so far.

Despite signals from Fed on maintaining the current monetary policy on raising interest rates, growing concerns among investors about the US economic growth, geopolitical issues like the ongoing war in Iraq and the offensive posture of Iran continues to support gold.

Presently gold lacks the energy and the trigger to target the psychological resistance at $500 but remains well supported due to the seasonal demand.

Spot gold prices rose higher in line with our expectations. Support at $463 held well for a test of the psychological resistance at $480. Break of important support at $468 will now take prices to $463 from where it is expected to bounce higher again. Failure to do so, would further take it lower towards $458.

Trend continues to remain bullish in the bigger picture. And as long as $455 caps the downside, spot gold prices could test the technical objective at $490 or even higher towards the psychological level at $500.

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 $448 will diminish our bullish expectation and signal the beginning of a larger correction lower.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. It is also showing a negative divergence, where prices have made a new high not confirmed by a new high in the indicator, further enhancing our near-term bearish view. The averages in MACD are still above the zero line of the indicator suggesting bullishness.

The short-term 8-day EMA is at $472.50 and the 34-day EMA is at $460.35. Therefore, look for spot gold prices to correct lower and test the support levels.

Supports are at $468, 463 and 458. Resistances are at $475, 478 and 481.

(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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