The Hindu Business Line : Gold likely to test resistance levels

Comex gold futures bounced higher on Friday on bargain hunting ahead of a long-weekend, as crude oil futures pulled back and the dollar weakened. Likelihood of any major correction in crude oil looks unlikely in the near-term, thereby underpinning gold prices.

Gold is still cheap relative to oil, which has doubled in the past year. The continued uncertainty over the housing slump and the sub-prime mortgage crisis reminded that the US economy is not out of the water yet.

The build-up in inflation pressures will be hard for the fed to cut rates, while the slower growth picture means tighter monetary policy would not be feasible.

Comex June gold futures tested the resistance levels as per our expectations.

Failure to break support levels and a consolidation at the present levels supports a bullish picture going forward. A sideways consolidation between $905 and $930 looks likely, followed by a break higher towards next important resistance at $956 followed by $963 now.

Crucial support is now at $893-95 levels, and an unexpected fall below this zone could change the bullish picture.

We believe that the third wave could have ended at $1033 and the fourth wave is in progress right now. We could now be tracking a wave four A-B-C in progress and once the correction ends, a potential fifth wave impulse could be in the making. Only a rise above $955 would confirm this view.

The RSI is in the neutral zone, indicating that it is neither overbought nor oversold.

The averages in MACD are still below the zero line of the indicator, suggesting a bearish reversal. Only a crossover above the zero line will now restore confidence for bullishness ahead. Therefore, expect gold to consolidate and test the resistance levels.

Supports are at $905, 893 & 880. Resistances are at $928, 941 & 955.

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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