The Hindu Business Line : Spot gold may consolidate, rise

SPOT gold prices fell lower after testing 18-year highs on profit-taking and strength in the dollar. Gold is expected to remain in demand as an inflation hedge so long as oil and gasoline prices are near record highs and doubts persist about how the US economy will weather the damage from hurricanes.

However, more supply in the coming months, less jewellery demand at higher prices and rising interest rates resulting in higher carry cost in the US could affect investment demand and could put a ceiling on gold prices going forward.

Spot gold prices corrected lower in line with our expectations. As anticipated, move below $463.65 materialised as part of a corrective rally.

As mentioned earlier, a strong bullish trend in motion with corrective dips being supported well. Psychological resistance at $473-75 will be a level to watch out for.

However, as prices rise, one should be alert for signs of corrections from time to time as the indicators caution markets getting into overbought situations.

Good support will now be seen at $465 and as long as $455 caps the downside, spot gold prices could test the technical objective at $490 or even higher towards the psychological level at $500.

As per our recent wave counts, the third wave ended at $458 followed by a fourth wave correction in the form of wave A to E, which ended at the recent low of $418 and the fifth wave appears to have begun from there.

A move below $445 will diminish our bullish expectation and signal the beginning of a larger correction lower.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator suggesting bullishness. The short-term 8-day EMA is at $463.60 and the 34-day EMA is at $451.10. Therefore, look for spot gold prices to consolidate and rise higher.

Supports are at $465, 461.40 and 458. Resistances are at $475.50, 478 and 483.

(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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