The Hindu Business Line : Spot gold may test support level

SPOT gold prices corrected sharply lower after reaching a new 25-year high, due to profit-taking, mainly in the Asian markets. Spot gold prices rose higher in line with our expectations. The correction after hitting $565 levels has been sharp and looks to follow-through and test supports near $530 followed by $522-23 levels, being the crucial long-term rising trend line point as seen in the chart above.

Resistance will be strong in the $552-53 levels now, with a possibility to extend even to $556 levels on buying momentum. While prices stay below $555-56 levels in the coming sessions, there is good chance of visiting the support points mentioned below.

As per our recent wave counts, we believe the current move to be an explosive third wave move in progress showing signs that it has ended at $565. RSI is in the neutral zone indicating that it is neither overbought nor oversold. It has also started showing negative divergences a sign of strong correction lower in the coming sessions.

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 have also closed below the short-term 8 period EMA for the first time in 2006, the first sign of near-term bearishness. Therefore, look for spot gold prices to test the support levels in the coming week.

Supports are at $538, 532 and 523. Resistances are at $553, 558 and 562.

(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.)