The Hindu Business Line : Gold may correct lower

SPOT gold prices rose higher hitting an 18-year high, helped by robust investment demand amid economic and geo-political worries eyeing another test of the psychological level at $500 an ounce.

The physical sector lacked buying interest from jewellery makers because of the high price but investors were selling gold bars to cash in on gold's gains. Gold has also loosened its link with currencies, hitting multi-year peaks when the US dollar has risen against other currencies on the prospect of more rises in the US interest rates.

Spot gold prices moved higher in line with our expectations. Key resistance will be seen at $498-500 levels from where good profit-taking could set in. The trend channel seen in the chart above seems to indicate a good possibility of a test of $523-25 levels in the weeks to come. However, prices could get volatile due to thin volumes this week amid a long weekend in New York.

Prices are also seen hovering in the overbought zone and could result in intermediate corrections. But this correction cannot be construed as sign of reversal, instead should be used as an opportunity to positions longs again.

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 looks to continue to be in motion after a fractal break $480.60. Initial target for the fifth wave has been met and looks like it could now extend further higher.

RSI is in the overbought zone indicating a correction lower to take place. The averages in MACD are above the zero line of the indicator suggesting a bullish reversal. Only a crossover of the averages below the zero line will signal bearishness again. Prices are above the short-term 8-day EMA is at $484.50 and the 34-day EMA is at $471.75. Therefore, look for spot gold prices to test the resistance levels and then correct lower.

Supports are at $487.50, 483 and 478. Resistances are at $495, 498 and 508.

(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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