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Agri-Biz & Commodities - Technical Analysis


Downward tweak likely in gold

Gnanasekar T.

SPOT gold prices corrected lower after a sharp drop in oil prices and the presidential elections coming to an end with a clear winner. Markets will now turn their attention to Friday's monthly US employment report.

Gold prices corrected lower and found support at lower levels in line with our expectations. Resistance continues to be strong at $428-430 levels — the rising trend line resistance point. Only a daily close above $430 will set the trend higher for gold to initially test $436, followed by another important resistance at $445.

Failure to decisively cross $430, on the other hand, can see spot gold prices correcting lower again towards $415 levels. The favoured view is to look for a lower correction in light of the divergences seen in the indicators. Only an unexpected break of $405 will see spot moving into bearish territory.

We were looking at the current move from $371 as a corrective irregular wave `B' in progress and a wave `C' to follow. As per our recent count, the third wave ended at $433, followed by a forth wave correction to $371 and the current move as a fifth wave, since it shows characteristics of an impulse wave.

The Relative Strength Index (RSI) is now in the neutral zone indicating that it is neither overbought nor oversold. It is also showing a minor negative divergence, and therefore a correction can be expected. The averages in the Moving Average Convergence/Divergence (MACD) are still above the zero line of the indicator suggesting bullishness. Only a crossover of the averages below the zero line in the indicator will signal a bearish reversal.

Prices are below the short-term nine-day EMA at $424.27 and the medium term 25-day EMA is at $420.40. Therefore, look for prices correct lower again. Supports are at $423, $418 and $415. Resistances are at $428, $430 and $436 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 that of his employer. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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