The Hindu Business Line : Gold may test support level

SPOT gold prices retreated sharply lower after reaching a fresh 24-1/2-year peak in line with COMEX gold futures. As mentioned earlier, the only negative factor in the short-term was the potential fund liquidation being in the last month of the financial calendar year and the substantial long positions held by them in gold derivatives.

This wave of fund liquidation resulted in the sharp fall we have seen past the three sessions. Gold prices are likely to resume its climb higher after this correction. Underlying supply-demand trends are increasingly supportive for gold prices.

While we remain cautious towards a price correction in the short-term, new price highs in 2006 are expected.

Spot gold prices finally corrected lower after seeing exaggerated moves on the up side. Good support will now be seen at $495 levels being an important technical objective for this present correction. This happens to be the fibonnaci 38.2 per cent levels for the move from $418-541. Stronger support is at $476-80 being the long-term trend line support point as seen in the chart above.

As per our recent wave counts, we believe the current move to be an explosive third wave move ending at $541 followed by the fourth wave correction in progress. RSI is in the highly 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 below the short-term 8-day EMA is at $516 indicating bearishness while the medium-term 34-day EMA is at $494.50. Therefore, look for spot gold prices to test the support levels.

Supports are at $498, 494.5 and 485. Resistances are at $513, 518 and 523.

(The author is in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX. 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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