The Hindu Business Line : Gold to test resistance, correct lower

Comex gold futures fell over $25 as it continued to correct lower from recent record highs, with a stronger dollar and weaker oil prices pushing prices down ahead of a long weekend.

Demand from jewellers has been hit hard by the recent rise in gold prices, but pent-up buying interest is expected to provide good support for the precious metal, as the price comes down.

A roughly 10 per cent drop in gold prices from record highs in the past week doesn’t portend a longer and deeper correction for the metal, because inflation concerns are likely to continue, and sellers will probably return as buyers into what has been a bullish market.

Comex April gold futures corrected lower as expected. Whether the correction is over or some more downside is left? Or, is it an outright reversal in trend? We believe that the correction could extend further, if the rising trendline — pointing between $898 and $901 — gives way. However, a very important support is at $877 followed by $850, a previous high. Rallies to $955-60 are now expected to cap upside attempts. Only a direct rise above $965 could now rekindle bullish expectations.

An outright reversal in trend to bearish is not favoured. 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. 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 now signs that the fifth wave could have ended. A possible A-B-C correction lower is in the offing.

The RSI is in the neutral zone, indicating a negative divergence — a sign of possible intermediate top. The averages in MACD are still above the zero line of the indicator suggesting bullishness to be intact. Only a crossover below the zero line will indicate bearishness. Therefore, expect gold to test the resistance levels and correct lower.

Supports are at $902, 877 & 850. Resistances are at $938, 955 & 965.

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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