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Agri-Biz & Commodities - Technical Analysis


Spot gold may correct lower

Gnanasekar. T

SPOT gold prices continue to hover around the psychologically important $450 level. Gold has shrugged off a firm dollar and is slowly gaining strength helped by crude oil prices.

Uncertainty about whether the Federal Reserve will raise interest rates or pause its 14-month credit tightening cycle at its policy meeting on Tuesday helped support gold.

Spot gold prices rallied higher in line with our expectations. Though the overall picture favours bullishness, one corrective decline to $443-45 levels looks possible. We have been discussing a positive triangle pattern in our previous up dates. As seen in the chart above, prices have recently broken out of the triangle pattern targeting higher.

However, indicators are in overbought territories signalling a possible correction to take place before the rise.

Strong supports is seen at $445 level now, and feel any downside attempts should be contained around these levels, failing which a sharper correction lower could unfold. Favoured view is either a correction lower towards the support level or a straight break above $452.50.

As per our recent wave counts, the third wave ended at $458 followed by a fourth wave correction to $418 and the fifth wave appears to have begun from there. A move below $421 will negate this count we have adopted recently.

RSI is in the overbought zone indicating a downward correction to take place.

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 of the indicator again will signify a reversal in trend. The short-term 8-day EMA is at $446.65 and the 34-day EMA is at $440.03. Therefore, look for spot gold prices to correcst lower initially and the head higher.

Supports are at $447, 445 and 442. Resistances are at $450.75, 453.50 and 458.65.

(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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