The Hindu Business Line : Gold may head lower again

Gold futures finished higher on Friday on modest gains fuelled by a late short-covering rally due to firmer oil prices. Gold often gets a lift from rising oil prices because some investors turn to the metal as a hedge against inflation.

Strength in the dollar over the last two days, due largely to expectations of another increase in interest rates by the US Federal Reserve at next week's meeting, capped further gains. Higher rates support the dollar and weigh on gold by reducing its' allure as an alternative asset. We still remain cautious about the precious metals prospects in the weeks to come.

COMEX gold futures have been trading in a choppy range on low volumes giving rise to suspicion on intermittent rallies. As mentioned earlier, though the current momentum can take it to $600 or even slightly higher, it looks highly unlikely for it to cross $625-30 levels in the near-term. Only a daily close above $655 will be a positive sign signalling that the genuine buyers have re-surfaced. Therefore, a break below $570.5 will signal bearishness leading it to $550 followed by $530.

We still believe that the third wave could have ended at $732 and the corrective fourth wave in progress. Currently, we could be in a wave "A" correction. The beginning of the fifth wave can be confirmed after a move above $688. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are below the zero line of the indicator suggesting bearishness.

Only a crossover of the averages above the zero line next will signal a bullish reversal again. Prices are below the short-term 8-day period EMA at $587 followed by the 34-day period EMA at $617. Therefore, look for COMEX gold futures to test the resistance levels and head lower again.

Supports are at $570.5, 563 and 550. Resistances are at $595, 603 and 627.

(The author is the director of Commtrendz Research and in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX. 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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