The Hindu Business Line : Gold likely to lose ground

Gold futures ended higher Friday, on a weaker dollar finishing the year with good gains. Ging into 2007, the dollar is mostly expected to mostly dictate direction for gold. Rising demand, falling production, dollar weakness, inflation worries adds up to one thing- rising gold prices. However, equity markets can be a real threat for gold in 2007. Rising equity markets can discourage fund allocation to commodities, and on the other hand falling equities will bring down all other assets including commodities.

COMEX gold futures rose sharply higher against our expectations. The current momentum has the potential to take prices higher to $644-45 levels, being a trend line resistance point. Break above $646 and a close above recent high of $655 will be a decisive sign of bullishness. However, the recent price action has happened in thin volumes and therefore need to watch for topping signs in the $645-654 range.

Our favoured view would be to expect a fall to $610 or even lower followed by a sharp rally higher to test the recent highs of $730. We believe that the third wave could have ended at $732 and the corrective fourth wave still in motion. Break above $678 will signal the beginning of the fifth wave move. RSI is in the neutral zone indicating that it is neither overbought nor oversold.

The averages in MACD are again above the zero line of the indicator suggesting a bullish reversal. Prices are below the short-term 8-day period EMA at $631 followed by the 34-day period EMA at $628. Therefore, look for Comex gold to test the test the resistance levels and fall lower.

Supports are at $633, 624 and 615. Resistances are at $642, 645 and 654.

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