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Gold may correct higher

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Gnanasekar. T

SPOT gold prices are seen correcting higher on the back of short-covering ahead of a holiday weekend and supported by physical bargain hunting at the current low levels. On the economic calendar, markets will watch out for the US first-quarter gross domestic product on Thursday and consumer sentiment and the Fed's preferred inflation gauge, the PCE index, on Friday.

Markets have become more bullish on the US currency of late, due to recently robust economic data.

Spot gold prices are correcting higher as expected. Prices have been finding support below $420 and failure to break further lower has resulted in profit-booking and a corrective move upwards is seen initially targeting $420.50 followed by important resistance at $423.50. This also happens to be the 200-day EMA level and fractal top point both having a technical significance.

As long as $428 caps the up side, we can expect prices to edge lower again. Only a move above $437 will negate our bearish view on spot gold prices. We will continue to maintain the wave counts as in the previous update, till we see a clear break of $438 on the up side. As per our recent wave counts, the third wave ended at $433 followed by a fourth wave correction to $371 and the fifth wave also looks to have ended at $457.75.

This was followed by a corrective move wave "A" to $410.50 by a wave "B" pullback to $446.70. Currently we are tracking a wave "C" and as per equality target should test the psychological $400 levels.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are below the zero line of the indicator in the daily chart signalling bearishness. Only a crossover of the averages above the zero line in the indicator now will signal a bullish reversal.

Prices are below the short-term 8-day EMA at $419.70 and the 34-day EMA is at $425.17. Therefore, look for gold prices to correct higher and test the resistance levels.

Supports are at $417.50, 413 and 410. Resistances at $420.50, 423.50 & 427 respectively.

(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.)

(This article was published in the Business Line print edition dated May 27, 2005)
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