The Hindu Business Line : Spot gold may head lower

SPOT gold prices retraced some of its losses after the US economic data released post FOMC showed the economy was still under pressure. Labour unrest in South African broad-mines, the leading producer of gold provided underlying support to spot gold.

US gross domestic product grew at an annualised pace of 3.8 per cent in the fourth quarter, flat with the prior estimate, and down from 4 per cent in the third quarter of 2004. Negative factors reigning in the market are concerns over whether the International Monetary Fund will sell or revalue some of its more than 100 million ounces of gold to help finance debt relief for poor countries. An IMF decision is seen possibly by next month.

Market participants will also be watching the March non-farm payroll report due on Friday for further direction. Dollar's recent strength posts the FOMC depressed sentiment in dollar denominated gold hitting six-week lows. A stronger US currency tends to depress gold as it makes the dollar-denominated commodity costlier for non-US buyers.

Spot gold prices have found support at $423 as per our expectations. However, follow-through buying is lacking, which can be interpreted as a bearish sign.

Strong resistance is expected at $428- 430 being a crucial support level in the past.

A daily close below $433 negated our overall bullish expectations. This will be an important barrier for spot gold to cross in the near-term.

And as long as $435 caps the upside, we can expect gold prices to slide lower towards $418, being the weekly channel support point as seen in the chart above.

Though we would not like to sound optimistic currently, looking at the bigger picture, we feel prices could reverse higher after testing the next important support at $418-420. We would like to stick to our previous wave-counts and only a move below $405 will force us to rework it.

As per our recent wave counts, the third wave ended at $433 followed by a fourth wave correction to $371 and the current move, as a fifth wave, since it shows characteristics of an impulse wave.

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 in the daily chart signalling bearishness, but weeklies are still suggesting bullishness to be intact.

Only a crossover of the averages below the zero line in the indicator will signal a clear bearish reversal. Prices are above the short-term 9-day EMA at $428.60 and the 34-day EMA is at $431.50.

Therefore, look for gold prices to find resistance at higher levels and then head lower subsequently.

Supports are at $425, 422 and 418. Resistances at $429.50, 431.50 & 433 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 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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