The Hindu Business Line : Spot gold may correct lower

SPOT gold prices rose to a fresh twenty four-and-half year peak on Wednesday as investors rushed into gold for a pie of the action. As mentioned earlier, there is still a lot of room on the up side as the metal had supportive fundamentals. Markets have shown complete disrespect for important technical resistance levels, a sign of a major bullish trend in motion. The only negative factor in the short-term, could be the potential fund liquidation being in the last month of the financial calendar year and the substantial long positions held by them in gold derivatives.

Spot gold prices moved higher yet again ignoring calls for correction. Prices are at a short distance from an important technical level of $523 and hopefully expected to find resistance. This level happens to be the long-term channel resistance point as seen in the chart above. A sharp correction has been evading us the past couple of weeks.

Momentum is so strong that every minor dip is being bought aggressively. The indicators are in highly overbought territories, and it needs a brave heart to buy at present high levels. However, the present move also exposes the anomaly of making trading decisions using overbought/oversold conditions. Good support will now be seen at $503-505 levels.

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 looks to continue to be in motion after a fractal break $480.60. Initial target for the fifth wave has been met and looks like it could now extend further higher towards $523.

RSI is in the highly overbought zone indicating a correction lower to take place. The averages in MACD are above the zero line of the indicator suggesting a bullish reversal. Only a crossover of the averages below the zero line will signal bearishness again. Prices are above the short-term 8-day EMA is at $505.32 and the 34-day EMA is at $485.95. Therefore, look for spot gold prices to test the resistance levels and hopefully correct lower.

Supports are at $508, 502.5 and 497. Resistances are at $523, 525 and 530.

(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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