The Hindu Business Line : Gold may consolidate

Comex gold futures ended higher on Friday, after crude oil ticked higher and the dollar slumped against the major currencies after a weak payroll data. Inflation worries, due to sharp rise in energy prices, boosted gold.

Bullion, which is inversely related to dollar, gained as a brief dollar recovery failed after the US March jobs data, affirming expectations of further interest rate cuts by the Federal Reserve in April to boost a weakening economy.

The supply side problems in South African mines, due to the power crisis, is supportive for prices. Earlier during the week, the gold slid to a two-month low on fund selling, before staging a modest rebound.

The Comex April gold futures moved perfectly in line with our expectations. As expected, we saw a test of $877 levels. A sharp recovery from there is heartening. However, one needs to watch the sustenance of the pullback and the ability to surpass $925-930 levels in the near-term, to add hopes for the bullish trend to continue. We favour a sideways move now, or a fall towards $890 levels, to find good support and build itself for the next move, which could surpass the recent high.

However, we also expect volatility in the coming weeks and we caution against aggressive longs/shorts. We believe that the third wave could have ended at $732 and the fourth wave consolidation at $665, and the fifth wave is in progress.

There are now signs that the fifth wave could have ended. A possible A-B-C correction lower is in the offing. The RSI is in the neutral zone indicating a negative divergence, a sign of possible intermediate top. The averages in MACD are still above the zero line of the indicator, suggesting bullishness to be intact. Only a cross-over below the zero line will indicate bearishness. Therefore, expect gold futures to consolidate and test the resistance levels.

Supports are at $903, 892 & 885. Resistances are at $925, 936 & 948.

Gnanasekar T.

(The author is the Director of Commtrendz Research and also 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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