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Agri-Biz & Commodities - Technical Analysis


Spot gold may pull back

Gnanasekar.T

GOLD prices recovered on Wednesday and closed higher helped by a weaker dollar. US economic data has been mixed till now which, helped precious metals recover from their recent lows. The dollar backtracked after the release of a disappointing gross domestic product data last Friday.

Second-quarter GDP grew at a 3.0 per cent annual rate. This was much lower than market expectations up to 3.6 per cent. Dollar support, however, came from a 0.7 per cent jump in June factory orders and the release of an upbeat survey on the non-manufacturing sector from the Institute of Supply Management.

Markets will now wait on the sidelines before Friday's July US employment report, to see if the economy gathered steam coming out of a sluggish second quarter. Overall, economic data released till now is not favourable for the dollar. The slowdown will make it harder for the Federal Reserve to raise interest rates aggressively, which will in turn be bearish for the dollar.

Gold prices are trying to test the rising channel resistance levels. Resistance is seen at $393-395, which also happens to be the 200-day exponential average point and the rising channel trend line point. We continue to favour the downside in gold prices in the medium term. However, an extended moves up to $398-400 cannot be ruled out before we see a slide in gold prices.

As we have been maintaining, a break below $380 will see gold headed to its recent lows and possibly even lower to $365-368 levels. As per Elliot wave analysis, we have seen a failure of the fifth wave impulse at $433 and a sharp correction took place to $371, which is wave "A". Wave "B" then started from $371 and possibly ended at $408.75.

Wave "C" looks to have begun targeting lower levels, which is still our preferred view. This view holds good as long as prices do not close above the $415 levels. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator suggesting bearishness.

Prices are below the short-term 9-day EMA at $392.70 and the medium term 25-day EMA is at $394.95. Therefore, look for prices to pullback into the rising channel range initially and then head lower again. Supports are at $390, 385 and 380. Resistances at $ 395, 398 and 400 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 of MCX. This analysis is based on the historical price movements and there is risk of loss in trading.)

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