The Hindu Business Line : Gold may test resistance levels

GOLD prices moved higher after oil crossed the psychological $50 per barrel mark. Higher oil prices will benefit gold as it is considered an inflation-hedge. But as crude oil prices fell Wednesday on news of larger-than-expected inventories, gold followed suit and eventually corrected lower.

The final second-quarter US gross domestic product was revised up to show 3.3 per cent annualised growth, up from last month's preliminary 2.8 per cent rate. The adjustment means the economy expanded at a faster rate than the first quarter's 3.0 per cent growth, providing ammunition for the Federal Reserve to stay with a regular tightening course this year.

The Fed has contended that the economy will soon recover from a summer soft patch. It also stated that it would continue to raise rates at a "measured" rate as consumer price data in recent months has indicated inflation has "eased." Markets are still looking at a struggling dollar and the surge in oil prices to keep investor interest in the hard asset alive.

Gold prices found some resistance near the recent high of $414. Support will now be strong at $408-410 levels. Unexpected break of $405 will however see spot moving lower towards psychological support at $400 or even lower towards $397.

Price structures are currently favouring a move higher towards $420. However, we still maintain our bearish outlook for the medium-term. We need to alter some of our wave counts internally; however, the bigger picture still remains unchanged.

As per our recent count we are in a correction in the bigger picture after the fifth wave failed at $433 unable to cross the third wave top at $431.50 convincingly. A corrective wave "a" began from there and ended at $371. This was followed by a wave "b", which looked to have topped out at $414. But the current move towards $414 again, suggests that we could still be in wave "b". Confirmation of a wave "c" lower will now come on the break of $403.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator suggesting bullishness. Only a crossover of the averages below the zero line in the indicator will signal a bearish reversal.

Prices are below the short-term 9-day EMA at $409.05 and the medium term 25-day EMA is at $406.07. Therefore, look for prices to test the resistance levels. Supports are at $408, 405 and 403. Resistances at $ 414, 418 & 421 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. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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