The Hindu Business Line : Gold may test resistance, correct lower

Comex gold futures rallied to an historic peak towards the $1,000-mark after the dollar sank to new low against major currencies and crude oil powered to a record $111 a barrel. Bullion has been made more attractive by the decline in the US currency and the turmoil on the world’s stock markets, lifting the metal’s appeal as an alternative investment and a hedge against inflation. Deepening financial market troubles in the US boosted bullion’s safe-heaven appeal. Caution should, however, be exercised, as speculative positions eventually results in a sharp correction.

Comex April gold futures rose higher in line with our expectations. As expected, the week began with a correction towards $961 and then rose higher again. Immediate resistance is at $1013-15 levels now, being a trend line resistance point. However, when new highs are being made, it is better to wait on the sidelines till the move ends, rather than trying to catch a top. Supports will now be seen at $994. Only a fall below $982 will hint at a bigger correction to set in. As we have been maintaining, going further into 2008 and beyond, we believe there could be a potential for a rise towards $1,200 per troy ounce. We believe that the third wave could have ended at $732 and the fourth wave consolidation at $665, and the fifth wave in progress. There are still no signs of fifth wave end. RSI is in the overbought zone now, indicating that there is a possible correction in the offing. The averages in MACD are still above the zero line of the indicator, suggesting bullishness to be intact. Only a crossover below the zero line will indicate bearishness. Therefore, expect to gold test the resistance levels and correct lower.

Supports are at $994, 982 & 969. Resistances are at $1015, 1031 & 1045.

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