The Hindu Business Line : Spot gold may head lower

SPOT gold prices are stuck in a range as the direction of the dollar looks unclear and the markets continue to ignore negative fundamentals for the dollar.

Trade deficit figures eagerly awaited by market participants came in higher than markets expectations, but did not find support from dollar bears as it enhanced the view that Federal Reserve would pursue with the rate increase more aggressively as they have been raising concerns about inflationary pressures lately.

Physical buying and bargain hunting seems to limit gold price weakness currently.

Spot gold prices tested the resistance levels and then moved lower as we anticipated. Strong resistance is expected at $428-430 being a crucial support level in the past. While below $431, expect spot gold prices to consolidate in the current range of $423-429 and then head lower again.

A spike above $431 will be bullish in the near-term, but looking at the structures, we believe one more dip towards $420 looks more likely. A daily close below $433 negated our overall bullish expectations. This will be an important barrier for spot gold to cross in the near-term. And as long as $435 caps the upside, we can expect gold prices to slide lower towards $418, being the weekly channel support point.

As per our recent wave counts, the third wave ended at $433 followed by a fourth wave correction to $371 and the fifth wave also looks to have ended at $457.75. This was followed by a corrective move wave "A" to $410.50 followed by a wave "B" pullback to $446.70. Currently we are tracking a wave "C" and as per equality target should test the psychological $400 levels.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator in the daily chart signaling 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 8-day EMA at $427.60 and the 34-day EMA is at $429.30. Therefore, look for gold prices to consolidate and head lower.

Supports are at $427, 424.50 and 420.50. Resistances at $429.50, 431.50 and 433 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 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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