The Hindu Business Line : Spot gold may correct lower

SPOT gold prices rallied higher helped by a recovering Euro climbing to a two-month high, which makes dollar priced gold more attractive for investors. Fund and institutional buying has also lent support after some important technical levels were broken.

Crucial economic indicator ahead of the FOMC next week is the employment report due on Friday.

News of a possible South African mining strike also underpinned gold prices as it raised the threat of production shortfalls. But the impact due to the strike is expected to be minimal, as we are in a period of low demand for physical gold. Oil prices too climbed higher again above $60 a barrel increasing speculative demand for gold as an inflationary hedge.

Spot gold prices rose higher smartly after being able to close above the important 200-day EMA at $425. As mentioned earlier, a triangle pattern is seen which is bullish in nature. Resistance will now be seen at $440-442 a trend line resistance point. Failure to cross this resistance level will pressure spot gold prices lower towards $428 in the coming week.

However, a daily close above the fractal top of $444 will set a very bullish tone for gold prices to rise higher towards the recent high at $458 or even higher. Major support points to watch for will be $431. We are still unclear on whether to change the wave counts on account of the recent fall.

As per our recent wave counts, the third wave ended at $458 followed by a fourth wave correction to $410 and the fifth wave appears to have begun from there. A move below $415 will negate this count we have adopted recently.

RSI is in the heavily overbought zone now indicating a correction to take place. The averages in MACD have also gone above the zero line of the indicator suggesting a bullish reversal. The short-term 8-day EMA is at $430.15 and the 34-day EMA is at $427.62. Therefore, look for spot gold prices to test the resistance levels initially and then correct lower.

Supports are at $433, 431 and 428. Resistances are at $440, 442 & 445.

(The author is associated with the Multi Commodity Exchange of India Ltd. 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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