The Hindu Business Line : Spot gold may correct lower

SPOT gold prices corrected slightly from their 25-year highs on profit-taking but the sentiment remained upbeat. Rebounding dollar and softer crude oil prices limited interest in gold.

Spot gold prices moved in line with our expectations. As mentioned in the previous up date, after a consolidation between $550-565 levels prices have broken higher with potential resistance points at $580-83. Believe prices could find resistance here being an important trend line resistance point. Be wary of a good correction from these levels.

Failure to hold resistance though could see prices edging its way up to the psychological $600 mark too. Daily close below $561-62 will be the first sign of a deeper correction in the offing.

As per our recent wave counts, we believe the current move to be an explosive third wave move in progress. Only a fall below $538-40 will confirm the end of wave three and a fourth wave correction to have begun. RSI is in the neutral zone indicating that it is neither overbought nor oversold. Multiple negative divergences are seen in the indicator warning of an impending correction lower in the coming sessions.

Therefore, though there are good signs of this up trend to continue, it is advisable to tread with caution on the buying side from current levels. The averages in MACD are still above the zero line of the indicator suggesting bullishness to be intact. Only a crossover of the averages below the zero line will signal bearishness again.

Prices are above the short-term 8-day period EMA at $563 followed by the 34-day period EMA at $541. Therefore, look for spot gold prices to test the resistance levels and subsequently correct lower.

Supports are at $570.1, 563 and 555. Resistances are at $578, 580 and 585.