The Hindu Business Line : Gold may test resistance

Gold futures pulled back higher on Friday on bargain hunting after falling sharply lower during the week. The dollar fell lower after a weak US PPI and a surprising decline in retail sales, signs that bolstered the view of a slowing economy boosted by a weaker dollar and fund buying, again giving rise to hopes for a test of the psychological resistance at $700.

The dollar fell against the euro after a report showed that US payrolls growth for April was the lowest since November 2004 and weaker than economists' expectations. Despite the sell-off during the week a consolidation is expected in gold futures and believe the overall trend to be intact.

COMEX gold futures retreated lower after to failing to follow-through in the $693-95 range. A crucial rising trend line in the $675-78 has broken, indicating bearishness and this region could cap initial advances in the coming week. More important resistance is in the $683-85 levels and a rise above $688 again could rekindle bullish expectations.

The volatility in gold has been quite strong off late and therefore see more range-based movement in the weeks to come before it ultimately breaks higher above $700 levels. We still believe the overall up trend to be intact despite the recent fall. There is a possibility of prices testing $645 on the downside in case it fails to gather support in the $660 region.

We believe that the third wave could have ended at $732 and the current move being a fourth wave consolidation and the beginning of a fifth wave impulse will be confirmed above $698. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are above the zero line of the indicator suggesting bullishness. Prices are below the short-term 8-day period EMA at $682 indicating bearishness followed by the 21-day period EMA at $682.75. Therefore, expect gold futures to test the resistance levels and fall lower subsequently.

Supports are at $665, 658 and 645. Resistances are at $678, 683 and 688.

(The author is a director at 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.)

Gnanasekar.T

More Stories on : Technical Analysis | Gold & Silver

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Spot rubber prices improve

Gold may test resistance