Date:13/08/2004 URL: http://www.thehindubusinessline.com/2004/08/13/stories/2004081300201300.htm

Back Gold may test support levels

Gnanasekar.T

GOLD prices fell lower on Wednesday after an expected hike in the US interest rates helped the dollar recover against the major currencies. Investors bought the dollar as markets digested Fed's decision to raise interest rates in spite of economic data showing the economy slowing down in the first quarter.

The Fed hiked rates by the expected 25 basis points, and pointed out that despite recent signs of softness in the employment sector "the economy nevertheless appears poised to resume a stronger pace of expansion".

This action will not be beneficial for gold and will keep the dollar rather strong going into the elections. Market players remained sceptical that the recent spate of disappointing data on employment as well as the potentially damaging effects of the prevailing high price of oil and rising terror concerns could not be ignored. Markets will now look forward to the US trade balance figure for further clues.

Gold prices moved higher as per our expectations heading into the rising channel it has been moving for a while now and then went lower again. Gold prices tested $ 400 levels before correcting lower from there. Resistance will be seen at $398-400 now and support will be at $390-93, which also happens to be the 200-day exponential average point. We continue to favour the downside in gold prices in the medium term. However, another extended move up to $398-400 cannot be ruled out before we see a slide in gold prices.

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.

As per Elliot wave analysis, we have seen a failure of the fifth wave impulse at $433 and a sharp correction took place to $371, which is wave "A". Wave "B" then started from $371 and possibly ended at $408.75. Wave "C" looks to have begun targeting lower levels, which is still our preferred view.

This view holds good as long as prices do not close above the $415 levels. RSI is in the neutral zone now indicating that it is neither overbought nor oversold.

The averages in MACD have gone below the zero line of the indicator suggesting bearishness. Prices are below the short-term 9-day EMA at $395.95 and the medium term 25-day EMA is at $395.71. Therefore, look for prices to test the support levels. Supports are at $393, 390 and 385. Resistances at $ 398, 400 and 403 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.)