The Hindu Business Line : Spot gold may head lower

SPOT gold prices are being supported strongly despite a 25 basis point rate hike by FOMC overnight. Had the Fed been more aggressive, the dollar may have firmed, which would have been bearish for gold.

Markets also were waiting for the US President, Mr George W. Bush's State of the Union address for signals on how to tackle the nation's ballooning deficits, which could affect currency rates. Liquidation of safe-haven positions on the back of the Iraqi elections getting over without any major incidents weighed on prices. Also due this week is the US jobs data, which will provide further clues on the US economic recovery.

Lower crude oil prices too are weighing on precious metals. There are still plenty of reasons to buy gold with uncertainty about the outlook for the US economy, overall dollar weakness and demand growing from the launch of the US exchange-traded funds.

Spot gold prices continue to trade in a choppy range with support at $420-421 and resistance at $427-428. Break of this range either side will provide clues on near-term direction. With the price structures not favouring an up move, we can now expect prices to edge lower towards $415-17 levels initially with a possibility to even extend lower towards $412.

As long as $428-30 caps the upside, we can expect prices to edge lower. Resumption of the bullish trend can be confirmed only after a daily close above $435. We would like to stick with our previous wave counts and only a move below $405 will force us to rework it.

As per our recent wave counts, the third wave ended at $433 followed by a fourth wave correction to $371 and the current move as a fifth wave as it shows characteristics of an impulse wave. Recent fall to $417 is possibly the corrective sub-wave of the fifth wave impulse we are currently in.

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

Prices are below the short-term 9-day EMA at $423.75 and the medium term 25-day EMA is at $428.01. Therefore, look for prices to consolidate and head lower. Supports are at $420.25, 417 and 414.75. Resistances at $425, 428.50 and 430 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 that of his employer. 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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