The Hindu Business Line : Gold may consolidate, rise

SPOT gold prices extended higher helped by a downturn in dollar and geo political tensions in the West Asia. Recent movements in the currency markets suggest that gold's inverse correlation with the dollar is returning. Risk of profit-taking correction in gold continues to increase as prices hover near the psychological $550 levels.

Spot gold prices moved as per our expectations testing the support levels and subsequently rose sharply higher. Currently, we notice a consolidation between $538-549 levels, possibly preparing for the next big move higher. A consolidation seen after testing the psychological $550 levels, makes us believe that, there is further scope for the upside and chances of a sharp correction lower looks un likely. Major support is at $523-25 levels now and an unexpected break there can see it testing the trend line support point at $515 levels.

As per our recent wave counts, we believe the current move to be an explosive third wave move in progress and not a fifth wave as mentioned in the previous up date. RSI is in the overbought zone indicating that it is neither overbought nor oversold. It has also started showing negative divergences a sign of a possible top to be in place soon.

The averages in MACD are still above the zero line of the indicator suggesting bullishness to be intact. Only a crossover of the averages below the zero line will signal bearishness again. Prices are above the short-term 8-day EMA is at $536, while the medium-term 34-day EMA is at $514. Therefore, look for spot gold prices to consolidate and rise higher and test the resistance levels.

Supports are at $538, 532 and 523. Resistances are at $553, 560 and 569.

(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.)