Gold may be nearing an intermediate Top!

GOLD BULLS - - - Become Cautious

While not many trade in bullion, still there will be some (like me) who may be bitten by the ‘gold bug’.

The precious metals, along with other metals, have had a great run from near Rs 10500/- levels in Jan 08 to the recent top of almost Rs 13500/- in March-mid – a return of 28.50% in two months time!
Yes , you guessed it right again – During this period the Sensex gave a negative return of 28% !!

With the US economy trying to struggle out of a recession, the sentiments are still on the positive side for precious metals and Crude oil and these have touched many years’ highs. Gold surpassed $1000 while Crude crossed $110 creating a wave of panic in the world financial markets.

But, it is during these ‘extremely’ bullish scenario that a technical trader will become cautious.

Please refer to the Gold chart below.
You would observe that on Mar 17th (Monday) , the price of gold on MCX touched a high of Rs 13440/- but closed lower at Rs 13105/- This created what is known technically as ‘ gravestone doji’.

This is a potential Japanese candlesticks reversal pattern and at least suggests a halt in the current upmove.

Along with this you would also observe that the widely followed ‘RSI’ indicator is in the process of creating a negative divergence. I presume that a break in price below Rs 12950 ( Gold Mini April contract on MCX) should confirm the divergence.

The expected fall from this break out may not be more than Rs 12250/- which is the medium term support trendline.

Thus as a trader it may well pay off to be cautious at current levels.

Happy trading !

CA Rajiv D Khatlawala