Gold likely to extend the bull run

Akhil Nallamuthu | Updated on January 26, 2020

But silver outlook remains unclear as it faces critical resistance

MCX COMDEX, the composite commodity index of the Multi Commodity Exchange (MCX), fell sharply last week, following a decline in crude oil price.

The higher weight of crude oil (around 33 per cent) dragged the index lower despite a rally in gold, which has a lesser weight of nearly 17 per cent.

The path ahead for the index looks to be on the downside as the crude oil outlook is bleak.

The index can tread lower to 3,825 from the current level of 3,900, in the near term.

MCX-Crude (₹3,873)

Extending the downtrend, the February futures contract of crude oil at the MCX declined throughout the week. The contract has even slipped below the important level of ₹4,000. The outlook thus remains bearish.

The daily relative strength index (RSI), too, hints weakness, as it continues to head south. Also, the moving average convergence divergence indicator in the daily chart has further moved into the negative territory, showing good bearish momentum.

From the trading perspective, rather than selling the contract at the current levels, traders are advised to wait for the price to retrace to ₹4,000, and then initiate short. A valid stop-loss will be at ₹4,125. On the downside, the contract can weaken to ₹3,780 in the near term. Below that level, the sell-off can intensify, dragging the contract to ₹3,600.

MCX-Gold (₹40,352)

The gold price rallied during the past week and, as a result, the February futures contract of the yellow metal at the MCX rose above an important level of ₹40,000. The bull trend seems to have resumed and notably, the contract remains above the 21-day moving average.

Hence, a further price appreciation in the coming days is highly likely. Though the moving average convergence divergence indicator in the daily chart stays flat, the daily RSI shows a fresh uptick.

As the outlook remains bullish, one can continue to hold positive bias and initiate fresh long positions on declines, with a stop-loss at ₹39,600. The support below that level is at ₹39,300, which coincides with the 50 per cent Fibonacci retracement level of the previous upswing. On the upside, the contract will most likely rally to ₹40,800, beyond which it can appreciate to ₹41,200.

MCX-Silver (₹46,935)

The March futures contract of silver declined in the first half of the week. In the second half, the contract rebounded but could not gain above the resistance at ₹47,000. The futures contract is oscillating between ₹45,735 and ₹47,000.

Along with ₹47,000, the 38.2 per cent Fibonacci retracement level of the previous trend at ₹46,816 is acting as a considerable resistance band. Thus, for the contract to establish a sustainable rally, it must breach the key level of ₹47,000.

Since the price is in a sideways trend, traders are recommended to go long only if the contract decisively breaks out of the resistance at ₹47,000, and place a stop-loss at ₹45,600. On the upside, the near-term targets can be at ₹48,100 and ₹49,000.

MCX-Copper (₹437.5)

The price of the February contract of copper at the MCX slumped below both the 21- and 50-day moving averages last week; it breached a key support at ₹440, opening the door for further weakness. The daily RSI has declined below the midpoint level of 50 and the moving average convergence divergence indicator in the daily chart has entered the bearish region.

Though the price action indicates further decline, the contract might rally to ₹445 levels before resuming the downtrend.

Hence, from the perspective of trading, one can initiate fresh short positions if the contract bounces to ₹445 with a stop-loss at ₹455. On the downside, the contract can depreciate to ₹430.

NCDEX-Soyabean (₹4,138)

The February futures contract of soyabean at NCDEX closed the week below the critical level of ₹4,160, turning the medium-term trend bearish. The contract has also slipped below the 50-day moving average, adding to the bearish outlook.

Corroborating the bearish view, the daily RSI is below the midpoint level of 50 and the moving average convergence divergence indicator in the daily chart remains in the negative territory. However, ₹4,130 is a considerable support.

Since ₹4,130 is a support, traders are recommended to initiate fresh short positions below that level with a stop-loss at ₹4,275. Below ₹4,130, the immediate support is at ₹3,990, which can be the short-term target.

Published on January 26, 2020

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