SPDR Gold Trust - Breach of key supports suggests further correction

- SPDR Gold Trust could face more downside pressure in the weeks ahead after breaching several key supports, provided by the 8-month uptrend line and also both the 50-day and 100-day MA yesterday on relatively heavy volume.

- This especially if the shares fail to regain US$92.93 (support-turned-resistance level and 8-month uptrend line).

- But with the RSI indicator just falling into the oversold region under a strong downtrend momentum and the MACD indicator exhibiting a bearish centerline crossover yesterday, they support our view that further correction is likely.

- We expect the stock to find initial support at around US$87.66 (resistance-turned-support level), breaking which, the next key support is likely at US$85.06 (resistance-turned-support level and 200-day MA).

- Beyond US$92.93, the next resistance is at US$97.00 (Jun ’09 high).

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Gold rises 1 percent on China reserve news

Gold rose 1 percent to a three-week high on Friday after China said it had been buying the precious metal for its reserves, confirming speculation it has been bulking up its reservesand raising hopes of more purchases to diversify its massive foreign exchange holdings.

The government has 1,054 tonnes of gold in its reserves, up 454 tonnes tonnes since 2003, Hu Xiaolian, head of the State Administration of Foreign Exchange(SAFE), said. This makes it the fifth biggest country holder.

Spot gold rose to $910.90 per ounce b 0528 GMT, up 1 percent from New York''s notional close of $902.00. It has risen 5 percent so far this week, putting it on track for the biggest weekly gain for two months.

Prices have also been by physical demand from India, the world''s largestconsumer, ahead of the Akshaya Tritya festival on April 27, an auspicious time for gold buying.

Low interest rates globall are helping to bolster financial strength for banks and securities firms, but consumer demand was still slack, limiting rises in stocks and keeping risk aversion alive, traders said.

Gold - Wait for better buying opportunity

Short-term Outlook

- After a phenomenal 1.5-month charge to a near all-time high of US$1006, Gold is likely to face some correction pressure in the near term, although the medium-term trend remains positive.

- While the MACD indicator remains very positive, it has just cut down; the RSI has also turned lower just below the overbought region, suggesting a possible near-term pullback.

- We expect the pullback to find strong initial support at US$883 (4-month uptrend line support and also 38.2% Fibonacci retracement of the rally from Oct’08 low of US$682 to Feb’09 high of US$1006) ahead of US$845 (50% retracement).

- We see immediate resistance at US$1006 (recent high), ahead of US$1032 (all-time high).

Medium-term Outlook

- We think there is potential for Gold to set a new high of at least US$1072 over the medium term.

- We note that the current 4-month uptrend (light blue line) is almost a carbon copy of the previous 7-month rally (dark blue line) in Aug ’07. - So if the current uptrend holds, we can expect it to at least emulate the previous one and rise towards US$1072 or higher.

Chart for GLD 10US$

Time to take profit around US$96.82

Chart for GLD 10US$

Gold next level may be around US$96.80

Gold is set to rise further; could reach $1,190 or $1,300 in March or May

Outlook for NY gold — Gold breached last autumn’s rebound high of $909 (2008/9/22), making it virtually certain that a new rising leg from $705 (2008/11/13) is under way, in our view. The focus moving forward will be on whether gold stays on its upward trajectory and penetrates resistance at $933. We think a push through $933 would increase the likelihood of gold renewing last spring’s all-time high at an early stage and rising to $1,190 or $1,300 in March or May.

Into new upward phase — Gold peaked last spring at $1,004 (2008/3/18) and entered a correctional phase, but it did not correct as much as crude oil or non-ferrous metals and bottomed at $705 (2008/11/13). After that, it broke out of the bear flag pattern it had traced since last summer and rose further to breach last autumn’s rebound high of $909 (2008/9/22), virtually assuring that a new rising wave is in progress.

Near-term resistance at $933 — As we said in our last issue of “Next Wave”, this coming March (return of 158- and 59-month cycles) and May (98-month cycle) are important months from the standpoint of time cycle analysis. In the meantime, we think attention is going to focus on whether gold breaches near- term resistance at $933 at an early stage.

Scenario (1) — If gold breaks above $933 and appreciates further to breach $986, we think it will likely surpass last spring’s high of $1,004 (2008/3/8). If this happens, it could ultimately rise to $1,190 or $1,300.

Scenario (2) — If gold peaks at $933, it would be vulnerable to a pullback, but we see the correction playing out after a drop of about $77 or $128. In this case, gold would be more likely to struggle for direction until around March and then break out of the holding pattern held since last spring, rising to $1,190 or $1,300 in May or thereafter.