The Hindu Business Line : Spot gold may test support level

GOLD prices went lower on the lack of follow through to close above the psychological resistance level of $400. MayUS employment report is due on Friday which will be eagerly awaited by the market as it could provide clues to further direction of the dollar from here.

These numbers could indicate how early Fed could step in to raise rates which in turn will strengthen the dollar and make dollar-priced commodities like precious metals expensive.

Gold has been recovering as the dollar has weakened in recent weeks. The Federal Reserve has signalled it could hike interest rates soon to cool the economy. This could possibly happen as early as June or August at the Federal Open Market Committee meeting.

Worries over oil prices, which are hovering over $40 a barrel could spark inflation and slow the economic recovery, both of which would be positive for gold prices, which is seen as an inflation hedge.

According to a report by the World Gold Council, consumer demand for gold including jewellery and retail investment rose 12 per cent to 681 tonnes in the first quarter, compared with the same period a year earlier, even though prices for the precious metal were hitting 15-year highs.

Gold prices are struggling to hold on to gains in the last two weeks. A smart rally close to $400 was seen. However, it failed to close above this level showing lack of confidence and momentum. Also, prices are lower than the 200 day moving average again after trading above it for three days.

Support shall be seen at $388-389 followed by important support at $385. Unexpected break below $382 will set the tone for a test of the low at $371 and possibly head further lower to $365 levels.

Preferred view will be look out for the support levels to hold for a test of the important resistance at $405. Therefore, as long as $382 holds, we continue to look for signs of bullishness.

As per Elliot wave analysis, we have seen a failure of the fifth wave impulse and a sharp correction took place, which is wave "A". This will be followed by an upward correction in the form of wave 'B". We now believe that wave "B" is underway and a break of $382 will confirm the beginning of wave "C" in the daily picture.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are on the verge of going above the zero line of the indicator suggesting a bullish reversal.

Prices are higher than the short-term 9-day EMA at $390.75 and the medium term 25-day EMA is at $389.50. Look for prices to test the support levels and head higher from there. Supports are at $388, 385 and 382. Resistances at $395, 398 and 405 respectively.

(The author is associated with the Multi Commodity Exchange of India Ltd. (MCX). The views expressed in this column are his own and not of MCX. This analysis is based on the historical price movements and there is risk of loss in trading.)

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