Date:21/10/2005 URL: http://www.thehindubusinessline.com/2005/10/21/stories/2005102100131300.htm

Back Gold may test support level

Gnanasekar. T

SPOT gold prices settled at their lowest level on Wednesday on speculative selling associated with a slide in oil prices. A stronger dollar also had its effect on gold prices. Spot gold prices hit a high of $480.25, a new 18-year peak on investment demand recently. Trimming of the huge net speculative long positions in COMEX triggered a sell-off resulting in sell stops being triggered. Recent data from the US has been very supportive for the dollar.

A key measure of the US inflation rose more than expected enhancing the view that interest rates are bound to continue rising. Separately, money flowed heavily into the US assets in the latest month's data, diminishing concerns on the twin deficits. Concerns on equity markets returns in the coming year due to higher interest rates and inflationary concerns are expected to keep investment demand for gold robust at lower levels.

Spot gold prices headed lower in line with our expectations. Support at $463 gave way and prices tested the psychological support at $461. Failure to hold support here should see prices dipping lower towards $458 another important support point. Despite the recent fall in prices, trend continues to remain bullish in the bigger picture.

And as long as $455 caps the downside, spot gold prices could test the technical objective at $490 or even higher towards the psychological level at$ 500. As per our recent wave counts, the third wave ended at $458 followed by a fourth wave correction in the form of wave A to E, which ended at the recent low of $418 and the fifth wave appears to have begun from there. A move below $448 will diminish our bullish expectation and signal the beginning of a larger correction lower.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator suggesting bullishness being intact overall. The short-term 8-day EMA is at $470.57 and the 34-day EMA is at $462.87. Therefore, look for spot gold prices to test the support levels and rise higher subsequently.

Supports are at $462.50, 457.50 and 453. Resistances are at $468, 473 and 478.

(The author is associated with The Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not necessarily that of his employer. This analysis is based on historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)