SPOT gold prices bounced back higher on bargain-hunting at lower levels and a softer dollar, as speculators took profits post the congressional testimony by the Fed Chief, Mr Alan Greenspan. Gold slipped to a six-week low earlier on thoughts that the US Federal Reserve will continue to hike interest rates.
Though the Fed Chief gave an optimistic assessment of the US economy in two days of congressional testimony, it failed to spark buying of the US currency. Physical volumes in gold too dwindled due to the summer lean period. The Euro seems to have found a bottom recently after hitting a 14-month low on consistent interest rate increases in the dollar and a positive change in the other economic indicators, which rendered the yellow metal more expensive.
Even the recent terrorist attack in London failed to attract any sustained safe-haven buying. Unless, there is a major change in the US economy, which does not look likely, gold is likely to move in ranges.
Spot gold prices pulled back after testing important support levels as per our expectations. Crucial support is now at $418 and a daily close below this level will open the downside towards $413-15, also being a trend line support point. A triangle pattern is seen in the chart above with support again at $415-17 an important long-term channel support levels. Resistance will be seen at $424.75 a 200-day EMA point.
Failure to cross this resistance level will pressure spot gold prices lower towards $415 in the coming week. Favoured view is to look for prices to test the key support levels before a rally to the up side begins. Initial support will be seen at $420.50. We are still unclear on whether to change the wave counts on account of the recent fall.
As per our recent wave counts, the third wave ended at $458 followed by a fourth wave correction to $410 and the fifth wave appears to have begun from there. A move below $415 will negate this count we have adopted recently.
RSI is in the neutral zone now indicating that it is neither overbought nor oversold. It is also indicating a positive divergence, where prices are making a lower low not confirmed by the same in the indicator. The averages in MACD are below the zero line of the indicator suggesting bearishness. The short-term 8-day EMA is at $422.65 and the 34-day EMA is at $426.57.
Therefore, look for spot gold prices to test the resistance levels initially and then move lower again. Supports are at $420.50, 418 and 415. Resistances are at $424.75, 428 and 431.
(The author is associated with The Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not necessarily that of his employer. This analysis is based on historical price movements and there is risk of loss in trading. He can be reached at firstname.lastname@example.org.)