The Hindu Business Line : Spot gold may correct lower

SPOT gold prices vaulted higher as the dollar made record lows against the Euro in particular and against other major currencies as well in spite of the US economic figures coming in at the higher end of market expectations.

Focus is currently on the G-20 Finance Minister's meeting in Berlin starting Friday. Markets are also worried that the US assets will not attract enough investor flows to plug its huge current account gap. Only a weaker dollar would make exports competitive and imports into the US more expensive.

Spot gold prices have hit the important resistance at $445 in line with our expectations. Should this level not provide any meaningful resistance, we can expect prices to move further towards the psychological resistance at $450. Support should now be seen at $433-435 levels.

As mentioned in our previous week's update though possibilities of short-term corrections exist, the underlying trend is quite strong and every dip and correction would be treated as a buying opportunity. Only an unexpected break of $423 will see spot moving further lower.

An Elliot target for the current move is at $454 followed by another target at $465. 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 fourth wave correction to $371 and the current move as a fifth wave as it shows characteristics of an impulse wave.

RSI is in the overbought zone now indicating a correction to take place soon. 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 in the indicator will signal a bearish reversal. Prices are above the short-term 9-day EMA at $436 and the medium term 25-day EMA is at $429.52. Therefore, look for prices to test the resistance levels and correct lower subsequently. Supports are at $438, 433 and 425. Resistances at $ 448, 454 and 465 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. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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