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Gnanasekar. T

SPOT gold prices are moving in a narrow range after testing some key support levels on the back of speculative liquidation in precious metals which took the dollar to seven-month highs against the major currencies.

Drop in physical interest at the end of the summer season will further pressure prices lower. Weakness at the end of the March-May wedding season in India and less European fabrication demand will dampen physical interest seen holding prices currently.

However, markets have become more bullish on the US currency of late, due to recently robust economic data. The important news to look for in the coming weeks, would be of the Chinese Yuan revaluation and how it could have an effect on the dollar and gold in turn.

Spot gold prices moved perfectly in line with our expectations. Prices dipped below the psychological support at $420 and have been finding support due to possible bargain hunting at lower levels. Minor pullback to be expected to $425-426 levels on the back of indicators heading into oversold territories.

Resistance will be quite strong at $424.80-425.50. A daily close below $417.25, which is also the rising trend line support point, will open the downside initially towards $410 or even lower. Only a move above $438 will negate our bearish view on spot gold prices.

We will continue to maintain the wave counts as in the previous update, till we see a clear break of $443 on the up side. 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 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 are below the zero line of the indicator in the daily chart signalling bearishness. Only a crossover of the averages above the zero line in the indicator now will signal a bullish reversal.

Prices are below the short-term 8-day EMA at $422.75 and the 34-day EMA is at $427.40. Therefore, look for gold prices to correct higher initially and then head lower again.

Supports are at $420.25, 417.50 and 410. Resistances at $424.80, 426 and 428 respectively.

(The author is associated with the Multi Commodity Exchange of India Ltd. 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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