The Hindu Business Line : Gold likely to test support levels

Comex gold futures ended lower on Wednesday on profit-taking ahead of a long weekend. Moves in the dollar are seen supporting gold this week. Economic data from the US on the trade deficit, retail sales and industrial production was seen neutral to bearish, underpinning gold prices. Gold was also supported by rising crude oil prices. Gold has recently been a beneficiary of safe-haven buying due to on-going uncertainty about other financial markets. Recent statements from M r Bernanke, hinted at more rate-cuts, which has further boosted the appeal for precious metals.

Comex December gold futures moved in line with our expectations, testing the resistance levels. As mentioned in the previous update, volatile conditions persist. Supports are now at $893 followed by $887. Crucial near-term support is at $887 now. As mentioned in the previous update, a corrective fall could pose an opportunity to position oneself for a strong rally subsequently to $1,200 levels. As we have been maintaining, going further into 2008 and beyond, we believe there could be a potential for a rise towards $1,200 per troy ounce. Our favoured view expects a correction lower for the week towards $874 levels as long as the $920-23 caps upside attempts. We believe that the third wave could have ended at $732 and the fourth wave consolidation at $665, and the fifth wave in progress. There are still no signs of the end of fifth wave. RSI is in the neutral zone indicating that it is neither overbought nor oversold. It has now started displaying a negative divergence, a sign of an intermediate top in place. The averages in MACD are still above the zero line of the indicator suggesting bullishness to be intact. Only a cross-over below the zero line will indicate bearishness. Therefore, expect gold test the support levels.

Supports are at $893, 887 & 874. Resistances are at $915, 923 & 935.

Gnanasekar T.

(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.)

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