The Hindu Business Line : Gold could test resistance, dip

Gold futures jumped to a 25-year high, on worries about record oil prices, a declining dollar and international confrontation over Iran's nuclear programme. Also, investment products like ETF's were attracting more investor interest, while long-term institutional players such as pension funds are looking to the metal to diversify their portfolios.

The dollar slumped after the market took a view that Federal Reserve is nearing a pause in its dollar-boosting interest rate campaign. Gold will continue to be underpinned till the eventual resolution of the Iranian conflict.

COMEX gold futures moved perfectly in line with our expectations. As prices continue to take out multi-year highs, we have chosen a monthly chart to get some indication of the possible up side from here. As seen in the chart above a long-term target is seen at $725. However, it is difficult to say if it can reach this level in the current impulse.

Near-term resistance is quite strong at $665, being an important technical objective. Trigger for a strong downside correction will be seen only on the break of $634 in the coming week. Based on the current momentum, we now believe that third wave is still in progress in the bigger picture.

A corrective fourth wave can be expected subsequently. RSI is in the overbought zone again indicating that it is due for a corrective decline and therefore be cautious of the upside from here. The averages in MACD are above the zero line of the indicator suggesting bullishness.

Only a cross-over of the averages below the zero line will signal a bearish reversal again. Prices are above the short-term 8-day period EMA at $634, indicating short-term bullishness followed by the 34-day period EMA at $602.

Therefore, look for Comex gold futures to test the resistance levels and subsequently correct lower.

Supports are at $648, $641 and $634. Resistances are at $665,$ 673 and $685.

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