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Agri-Biz & Commodities - Technical Analysis


Spot gold may head lower

Gnanasekar.T

GOLD prices headed lower as the dollar climbed higher on the back of comments from the US Federal Reserve Chairman, Mr Alan Greenspan, during a satellite address to an international monetary panel in London that the central bank would do what is needed to keep inflation in check.

Currency moves and interest rate expectations remained in the spotlight for gold. US interest rate expectations gained momentum again after Greenspan's remarks suggested there could be sharper interest rate increases than had been expected.

Therefore, there was now an increased possibility that Fed could get more aggressive than previously thought in raising rates, made the dollar more attractive, thereby decreasing interest in gold as an alternative investment. Lack of physical buying at key levels was also a reason for the fall as stops were triggered at the crucial support point at $385.

According to a report by the World Gold Council, consumer demand for gold, including jewellery and retail investment, rose 12 per cent to 681 tonnes in the first quarter, compared with the same period a year earlier, even though prices for the precious metal were hitting 15-year highs.

Gold prices moved more or less in lines with our expectations. Support at $385 held well, but lack of follow through to break the crucial resistance at $400 resulted in a sharp fall. Also, prices are lower than the 200-day moving average now at $391. Unexpected break below $382 will set the tone for a test of the low at $371 and possibly head further lower to $365 levels. Therefore, as long as $380-382 holds we continue to favour a test of the $400 levels.

As per Elliot wave analysis, we have seen a failure of the fifth wave impulse at $433 and a sharp correction took place which is wave "A". This will be followed by an upward correction in the form of wave "B". We now believe that wave "B" could have gotten over at $398.

A move below $380 will confirm the beginning of wave "C" in the daily picture targeting lower levels. RSI is in the neutral zone now indicating that it is neither overbought nor oversold.

The averages in MACD are above the zero line of the indicator suggesting a possible bullish reversal. Prices are higher than the short-term 9-day EMA at $389.75 and the medium term 25-day EMA is at $389.50.

Crossover of the two averages does not add strength to the bullish view now. Therefore, look for prices to consolidate and head lower. Supports are at $382, 380 and 371. Resistances at $385, 389 and 395 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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