The Hindu Business Line : Gold to consolidate, rise higher

Gold futures, ended higher on Friday on weekend short-covering and a recovery in the energy markets. The euro gained ground against the dollar and crude prices rallied as investors digested the implications of a mooted US government plan to deal with toxic bank assets. Many central banks have moved from the US treasuries into gold in this recent crisis, which was also a reason for the sharp upswing we saw in the week. Investment demand remains firm and demand for gold jewe llery, coins and bars is also expected to pick up as the festival season gets underway in major consumer India, although high prices may curb. Comex December gold futures swung wildly in extreme volatile conditions prompting the Comex to impose higher margins. As mentioned in the previous update, we saw bottoming sings below $750, but could not see the huge retracement coming. A period of consolidation is required now to cool nerves and build for a rise above $957 a trend line resistance point. Important supports are at $845 followed by $823 now. Favoured view expects prices to consolidate between $823 and $895 levels for sometime before rising towards $957 or even higher towards $1,000. Unexpected fall below $795 could cause doubts on this bullish view. We believe that the third wave could have ended at $1,033 and the fourth wave that we have been tracking could still be in formation and not ended as expected in the previous update. Indicators are displaying positive divergences, where prices are making a lower low not confirmed by a lower low in the indicator, a sign of a bullish turnaround. The 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 a bearish reversal.

Only a cross-over above the zero line of the indicator to signal a bullish reversal again. Therefore, expect gold consolidate and rise higher subsequently. Supports are at $845, 823 & 795. Resistances are at $895, 923 & 957.

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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