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Gold likely to consolidate in range

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Gnanasekar. T

SPOT gold prices ended marginally higher on Wednesday, as the dollar strengthened against the major currencies.

Sell-off in the crude oil futures markets affected sentiment in gold, as it is considered a hedge against inflation. The US central bank is widely expected to raise rates in its FOMC meet this month, as inflationary pressures continue to mount. Failure to do so would result in a dollar sell-off boosting gold prices higher.

Spot gold prices rallied higher against our expectations. Support at $430 looks very strong and only a break below this level will have bearish implications on spot gold, which has the potential to go as low as $427 or even lower to $423. The 200-day EMA is at $427.50 and this level is expected to hold gold prices strongly.

Presently, support is seen at $440 levels and this should contain any downside attempts.

Strong resistance will be noticed at $449-450 levels being the trend line resistance point.

Gold prices are range bound after testing a high of $447 and a clear direction can be seen either on the break of $440 lower or on a move above $449-50.

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 $421 will negate this count we have adopted recently. RSI is in the neutral zone indicating that it is neither overbought nor oversold.

The averages in MACD are still above the zero line of the indicator suggesting bullishness. Only a crossover of the averages below the zero line of the indicator again will signify a reversal in trend.

The short-term 8-day EMA is at $442.05 and the 34-day EMA is at $437.15. Therefore, look for spot gold prices to consolidate in a range and rise higher subsequently.

Supports are at $441.10, 438 and 435. Resistances are at $447, 449.50 and 452.

(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 gnanasekar_thiagarajan@yahoo.com.)

(This article was published in the Business Line print edition dated September 9, 2005)
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