The Hindu Business Line : Spot gold may test resistance level

SPOT gold prices moved higher helped by good fund and investor interest in the metals, as the dollar fell from a nine-month high against the major currencies. The common European currency is down about 10 per cent this year, due to sluggish regional growth and concerns about political tensions, after French and Dutch voters recently rejected the EU constitution.

Strength in base metals and crude oil prices climbing steadily higher have added support to precious metal prices. The dollar weakened on Wednesday after data on capital flowing into the US in April came in below forecasts and not enough to finance the burgeoning trade deficit. However, it is too early to get excessively bullish on precious metals, as the US Federal Reserve probably will continue to raise interest rates, which should boost the dollar and depress dollar-denominated commodities.

Spot gold prices continued to rise higher and a break of the near-term resistance at $425 has further added bullishness. This also happens to be the 200-day EMA level having an important technical significance. Currently, it is difficult to confirm if the bearish trend in gold has ended and whether to look forward to bullishness.

However, the euro seems to have found an intermediate bottom recently at 1.2017 and should correct higher, and this should underpin gold prices which could rise higher with it and test the resistance at $433-35 levels or even higher towards $438 in the coming week. We will continue to maintain the wave counts as in the previous update, till we see a clear break of $438.50 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 have gone above the zero line of the indicator suggesting a bullish reversal. Prices are above the short-term 8-day EMA at $426.78 and the 34-day EMA is at $424.75. Therefore, look for gold prices to test the resistance levels.

Supports are at $428, 425 and 421.50. Resistances are at 433, 435 and 438.

(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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