The Hindu Business Line : Gold could test resistance, drop

Gold futures ended higher on Friday helped by higher crude oil prices. Bargain hunting at lower levels helped lift prices higher. Markets ignored news of Chinese interest rate hikes and the Yuan would be allowed to trade more freely which will help Us with their burgeoning trade deficit with thereby helping the dollar.

Gold prices have been rising in recent weeks toward their 27-year peak of $730, set last May, but have failed to break the psychological $700 mark this year. Markets are still watching developments on the supply side as strikes looms large in a gold mine in Peru the fifth largest producer.

COMEX gold futures retreated lower in line with our expectations. Important resistance is at $672-73 levels. There is a possibility of prices even to extend to $675-76 levels and resume the fall towards$ 645 in the coming sessions, being a rising trend line support point. The bullish price structure could weaken below $634-35 levels and such a fall could lead prices back towards $555 levels.

However, it is too early to jump to such conclusions. In the big picture, we now feel $634-45 levels to hold once again for a rally towards $700 or even higher. 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 have gone below the zero line of the indicator suggesting bearishness. Prices are below the short-term 8-day period EMA at $668 indicating bearishness followed by the 21-day period EMA at $675. Therefore, expect gold futures to test the resistance levels and fall lower subsequently. Supports are at $665, 658 and 645. Resistances are at $668, 674 and 682.

(The author is the Director of Commtrendz Research and also 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.

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