Date:15/07/2005 URL: http://www.thehindubusinessline.com/2005/07/15/stories/2005071500981100.htm

Back Spot gold may test support level

Gnanasekar. T

SPOT gold prices headed lower triggered by a narrower than expected US trade deficit in May. The US Government reported the trade gap in May narrowed to $55.35 billion, lower than expectations easing concerns on external deficits.

Gold's rally over the past few years can be attributed to the huge US trade gap, which pushed the dollar to multi-year lows against the Euro. However, consistent interest rate increases and a positive change in the other economic indicators has made the yellow metals more expensive. Gold has struggled to regain levels seen in late June, when it hit a three-month high of $445. Spot gold prices fell sharply lower against our expectations. Crucial support is at $423 and a daily close below this level will signal bearishness for a potential target of $418, also being a trend line support point. Fell this level will be well supported and only a daily close below $415 will signal clear bearishness for gold.

A triangle pattern is seen in the chart above with support again at $415-17 also being the long-term channel support levels. Prices are below the important 200-day EMA at $425 a crucial support point, another indication of weakness to set in. Initial support will be seen at $420-21.

We might now want to take a re look at our wave counts again on account of the recent fall, but will wait for further confirmation this week. As per our recent wave counts, the third wave ended at $458 followed by a fourth wave correction to $410 and the fifth wave appears to have begun from there. A move below $415 will negate this count we have adopted recently.

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. The short-term 8-day EMA is at $426.15 and the 34-day EMA is at $428.45. Therefore, look for spot gold prices to test the support levels.

Supports are at $421, 418 and 415. Resistances are at $425, 428 and 431.

(The author is associated with the Multi Commodity Exchange of India Ltd. 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.)