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Gnanasekar.T

GOLD prices moved higher due to oil hitting record highs and terror concerns ahead of the Republican convention in New York. Gold scaled to a four-month peak on Friday as record high crude prices attracted investors towards precious metals.

Gold continued its bull-run amid growing concerns over recent sluggish US economic growth and the risk of inflation from record oil prices as well as the threat of al Qaeda attacks on the US.

Prices, however, slipped from its recent four-month high on Monday on lack of fresh buying interest, a correction in oil prices and a surprisingly stronger dollar. Gold is likely to remain underpinned by geo-political nervousness during the convention week as well as during the Labour Day long weekend.

Gold prices hit a four-month close to $415. Support should now be seen at $400-402 levels and as long as this level holds we should now see prices testing the channel resistance point at $423. Only a move below $396 will set a bearish undertone.

In spite of the recent strength in gold prices we continue to favour the downside in the medium term as the price structures suggest a sharp reversal once the resistance levels are tested. As we have been maintaining, a break below $380 will see gold headed to its recent lows and possibly even lower to $365-368 levels.

We need to alter some of our wave counts internally; however, the bigger picture still remains unchanged. As per our recent count we are in a correction in the bigger picture after the fifth wave failed at $433 unable to cross the third wave top at $431.50 convincingly.

A corrective wave "a" began from there and ended at $371. This was followed by a wave "b", which is still in progress looking to top out near $421. A wave "c" will begin from there targeting $365 levels. This will be confirmed after a break of $395.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are again above the zero line of the indicator suggesting bullishness. Prices are above the short-term 9-day EMA at $404.75 and the medium term 25-day EMA is at $401. Therefore, look for prices to consolidate and test the resistance levels.

Supports are at $402, 398 and 395. Resistances at $ 408, 412 and 415 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 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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