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Agri-Biz & Commodities - Technical Analysis


Spot gold may correct upwards

Gnanasekar. T

GOLD prices rose higher on the back of a dollar sell-off. Safe-haven buying from global political tensions has been supporting gold, as has physical demand from the West Asia and Asia.

But this has been neutralised by prospects for higher US interest rates, which can reduce the allure of hard assets that do not carry any yield. Energy prices remain strong and headed for new highs due to supply concerns in the West Asia. The dollar was sold on Tuesday after the Richmond Fed President, Mr Alfred Broaddus, said the rise in core inflation in recent months had grabbed the US central bank's attention.

Gold hit a seven-month low earlier as the jobs data came in surprisingly higher surpassing market expectations. Fund liquidation knocked the precious metal to $371.30 on May 10. Market is now focusing on the trade deficit factor as the other areas of the US economy have shown signs of good recovery.

The Commerce Department earlier said the March trade deficit widened to $46.0 billion from $42.1 billion in February.

Gold prices are moving in line with expectations. Support is seen strongly at $373 levels. There is also considerable resistance seen around $383-385 levels. This is the broad range gold has been moving in the last week. A break above $383 should take it to the channel resistance seen in the chart at $390. However, an unexpected move below $371 should see it testing the next important support at $363.

The double top pattern we identified close to $430 levels is quite clear now and could near its completion stage. Next crucial resistance lies near the 200-day moving average point now at $392. A daily close above $395 will be the first signs of resumption in up trend.

However, only a break of the $405 will be the confirmation for the same. The fibonnaci 50 per cent retracement support is at $372 near which a good pullback has been noticed. As we have maintained, this correction will throw a good opportunity to do some bottom picking, as the bigger picture has still not shown a reversal yet.

As per Elliot wave analysis, we have seen a failure of the fifth wave impulse and a sharp correction took place, which is wave "A". This will be followed by an up ward correction in the form of wave "B". We would now be looking for wave "B" to begin from the current levels.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator suggesting bearishness. Only a move above the zero line in the indicator will signal a reversal in trend.

Prices are higher than the short-term 9-day EMA at $381 and the medium term 25-day EMA is at $387. Look for prices to correct upwards. Supports are at $376, 371 and 365. Resistances at $385, 390 and 393 respectively.

(The author is associated with the Multi Commodity Exchange of India Ltd. (MCX). 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.)

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