The Hindu Business Line : Gold may test support levels

Comex gold futures fell sharply lower on Friday, due to softer oil prices and a rise in the dollar. The dollar edged higher, but hovered not far from record lows against the euro, after the US data showed that the inflation pressures were tamed in February — affirming expectations of further interest rate cuts by the Federal Reserve to boost a weakening economy. However, the weakness in the dollar is still exhausted, and with interest rates expected to fall further, the outlook for medium-term to long-term still looks bullish for gold.

Comex April gold futures moved perfectly in line with our expectations. As expected, rallies to $955-960 capped the upside for now. We have seen this pattern re-occur over and over again in the past two years in gold. A steep fall will be followed by a minor pullback and then a fall lower again, only to make a new high subsequently. Though we are not suggesting a new high from here, it is important to watch $961-965 levels now. We favour a corrective fall towards $898 levels or even lower towards $877 as long as $961-965 continues to cap the upside. We believe that the third wave could have ended at $732 and the fourth wave consolidation at $665, and the fifth wave is in progress. There are now signs that the fifth wave could have ended. A possible A-B-C correction lower is in the offing. RSI is in the neutral zone and indicating a negative divergence is a sign of possible intermediate top. 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 gold futures to test the support levels.

Supports are at $916, 898 & 877. Resistances are at $943, 955 & 965.

Gnanasekar T.

(The author is the Director of Commtrendz Research and also in the advisory panel of Multi Commodity Exchange of India Ltd(MCX). The views expressed in this column are his own and not that of MCX. 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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