Fundamentals News on Indian Gold

  • Gold prices plummeted by up to Rs 800 in single day on May21, 2014, the biggest fall in a day this year, to a 10-month low in major bullion markets of the country after the Reserve Bank of India (RBI) eased import restrictions on the precious metal.
  • Traders attributed the sharp fall in gold prices to RBI’s decision to ease import restriction on the metal, which triggered heavy sell-off by stockists.
  • RBI allowed select trading houses, in addition to already permitted banks, to procure the precious metal to boost exports.
  • Traders said there are expectations that RBI’s move would increase supplies and reduce prices in the domestic market.
  • Last July, RBI had imposed severe restrictions on gold imports to check burgeoning current account deficit and sliding rupee.
  • The central bank had tied imports with exports and prescribed a 20:80 formula. This facility was available to select banks only and other entities were barred from importing the metal.
  • A weakening trend in global markets, which normally sets price trend on the domestic front, also weighed on prices here.

Last Thursday, rupee strengthened by 30 paise to close at more than11-month high of 58.47 against the US dollar. A stronger rupee makes imports cheaper.

Welcoming RBI’s decision on easing the 20:80 gold import norms, the World Gold Council said this would help in increasing official supplies.

Technical levels on gold:

MCX Gold (Aug 5) Weekly Chart:

In the daily chart of MCX Gold (Aug 5) shown above, after making a high around 35000 in August 2013, correction was seen, thereafter. Price is making lower highs and lows on primary trend.

– Technical Indicators, RSI and MACD are showing negative momentum. RSI is trading in oversold zone 19.65. During May, price was trading in the range of 27700-28700. MACD failed to cross the centered line and went below the previous low.

– Breaching the 27700 levelsand major support of 27400, gold prices fell down sharply upto 25600 levels within 8-10 trading sessions. We may see further down trend up to 25000 in the August series.

MCX Gold (Aug 5) Weekly Chart:

– The weekly chart shows that price is forming an expanding triangle. For the short term, major support would be at 24900 levels, which also was the previous low. As per the Fibonacci Price Extension, price should correct at least upto 21920 levelsto complete the Expanding Triangle pattern.

– Technical indicator on the weekly chart shows negative momentum. RSI is going to touch oversold 30 levels whereas MACD is trading below the centered line and below the signal line support prices to go further downside.

Indian MCX Gold (Aug 5) Weekly Chart: (Elliott Wave Count)

  • As per major analysts, ‘Gold Bull Run is over. Spikes in price of 35000 levels were just the first corrective pattern of the expanding flat pattern. There is clear A-B-C of corrective expanding pattern where the price is currently trading in wave iii of higher degree wave 3 of wave C.
  • Price may take support near the 23500-24000 range and we may see little bounce back upto 26500-27000 to complete wave 4. That level would provide selling opportunity to traders. After that, we may expect the price to resume downside to unfold wave v of wave 5 of wave C. Conclusion:
  • In the short term, we may see further downtrend to 24500-25000 level. Sell on rise is advisable until 27000 levels. Resistance would be at 28800 levels.
  • In long term, Avoid buy on dips- Avoid buying in downtrend. Gold may lose its shining a little more. Target for the long term is 21800 levels and final target is at 19200 levels if international prices came down upto $1050 per ounce and rupee appreciates further upto 55-57/- against dollar. For the longer term, resistance would be at 30500 levels. 

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