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Gnanasekar. T

SPOT gold prices bounced higher mainly on bargain hunting, after it hit two-week lows as markets awaited the US interest rate decision on Thursday. A quarter basis point increase has been factored in to the market and this could possibly be the last such hike for the year.

Though oil prices have eased lower, supply disruptions and rumblings between the US and Iran the third largest oil supplier could underpin oil prices. The recent trend of falling oil imports from the US ahead of the fourth quarter winter demand, as indicated by the EIA is expected to keep oil prices well supported and could prompt investments into gold as an inflationary hedge.

Waning confidence in European economic growth and unity, and demand possibly outstripping supply has made the precious metal a better alternative to the dollar. Fund and investment buying have propped up gold prices now and prices are expected to continue rallying higher although it might not be a smooth ride.

Spot gold prices corrected lower on profit booking and indicators lying in overbought territories. As mentioned in the previous update, the weekly charts have started indicating a beginning of a possible up trend. The long-term channel support point at $415-17 has held well, and a bullish triangle pattern has also been broken on the upside.

Prices are also above the important 200-day EMA at $424 a crucial support point. Initial support will be seen at $435 or even lower towards $433 and as long as the long-term channel support point at $423-424 holds well, we can now expect spot gold to rally higher and test the recent highs at $458 or even higher.

As per our recent wave counts, the third wave ended at $458 followed by a fourth wave correction to $410 and the fifth wave appears to have begun from there. RSI is in the neutral zone now indicating that it is neither overbought nor oversold.

The averages in MACD are above the zero line of the indicator both in the daily and weekly charts suggesting bullishness. Only a crossover below the zero line will indicate a bearish reversal. The short-term 8-day EMA is at $437.50 and the 34-day EMA is at $430.25. Therefore, look for spot gold to consolidate and rise higher.

Supports are at $435, 433 & 430. Resistances are at $438, 442 & 450.

(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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