Date:08/10/2004 URL: http://www.thehindubusinessline.com/2004/10/08/stories/2004100800201100.htm

Back Gold may correct lower

Gnanasekar.T

GOLD prices headed higher tagging crude oil, which does not show any signs of a respite, marred by supply worries. Gold has also been supported by instability in Iraq, fears of al Qaeda and uncertainty before the November US presidential election. These have been some of the main factors for gold's recent rally.

Higher oil prices are seen benefiting gold as it is considered an inflation-hedge. Investor interest will be in an asset that can hold its value against inflation, and gold comes as the unanimous investment choice during uncertainties. Dollar is still showing no signs of a recovery against the major currenciesGold prices hit the important resistance at $420 as per our expectations. Support will now be strong at $413-415 levels. And as long as $408-410 level holds, we can expect this trend to continue heading higher towards $423 or even higher to the previous high at $433.

Unexpected break of $405 will, however, see spot moving lower towards psychological support at $397-400. , We still maintain our bearish outlook for the medium-term. 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 was 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 looked to have topped out at $414. But the current move towards $420 again, suggests that we could still be in wave "b". Confirmation of a wave "c" lower will now come on the break of $400.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. It is also showing a minor negative divergence, and therefore a correction can be expected. The averages in MACD are still above the zero line of the indicator suggesting bullishness. Only a crossover of the averages below the zero line in the indicator will signal a bearish reversal.

Prices are above the short-term 9-day EMA at $414.58 and the medium term 25-day EMA is at $409.90. Therefore, look for prices to correct lower initially and then head higher and test the resistance levels. Supports are at $413, 410 and 408. Resistances at $ 420, 423 and 430 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 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.)