Derivatives

Fall in gold not a trend-reversal yet

Akhil Nallamuthu | Updated on August 16, 2020

October futures likely to consolidate between ₹50,000 and ₹53,000

While the energy commodities gained last week, the precious metals posted considerable losses and base metals looked mixed.

A sharp fall in gold and silver prices dragged the iCOMDEX, the composite index of the Multi Commodity Exchange (MCX), which lost nearly 3 per cent.

Crude oil and gold contribute to half of the index weight and, therefore, these two commodities tend to have an impact on the index. Going forward, both are expected to move sideways, at least in the short run, and the index is likely to remain around the current levels.

MCX-Crude (₹3,170)

The September futures of crude oil on MCX was charting a sideways trend as it was oscillating between ₹3,140 and ₹3,240 throughout last week.

Apparently, the contract has been in a consolidation phase for the past two months.

Notably, the price is above the 21-day moving average (DMA), and the relative strength index (RSI) and the moving average convergence divergence (MACD) indicator in the daily chart stays in their respective bullish zones.

Though these are signs favourable for the bulls, the next swing in price will be uncertain until either of ₹3,140 or ₹3,240 is breached. A breakout of ₹3,240 can take the contract to ₹3,300 and ₹3,360, whereas below ₹3,140, the support levels can be spotted at ₹3,085 and ₹3,000.

MCX-Gold (₹52,227)

After posting gains for six straight weeks, the October futures contract of gold on MCX lost about 4.7 per cent last week — the biggest weekly loss in the past five months. The contract marked a three-week low of ₹49,955 on Wednesday before recovering to ₹52,227.

Following the sharp decline, the MACD has turned the trajectory downwards and the RSI also witnessed a sudden drop.

However, the RSI is above the midpoint level of 50 and the price is above the psychological level of ₹50,000.

Until the price remains above ₹50,000, it would be premature to call the latest dip as a trend-reversal.

On the other hand, ₹53,000 can act as a considerable hindrance and so the contract might start consolidating between ₹50,000 and ₹53,000.

Hence, until either of these levels are taken out, traders can adopt a range-trading strategy.

MCX-Silver (₹67,171)

Silver, which has been outperforming gold since early July, significantly underperformed as it declined twice as that of the yellow metal.

The September futures contract of silver on MCX lost 9.4 per cent last week and closed below the support of ₹70,000. It, in fact, made an intra-week low of ₹60,910 before recovering to ₹67,171.

As the price fell, the RSI and the MACD in the daily chart dropped. But the RSI is above the midpoint level of 50, whereas the MACD is above the zero level, indicating that the bears have not completely beaten down the bulls.

The contract might chart a sideways trend in the forthcoming week, possibly fluctuating between ₹64,000 and ₹71,300.

So, traders can go for range-trading methods until either of these levels are invalidated.

MCX-Copper (₹509.7)

Extending the consolidation, the August futures of copper on MCX remains within the range between ₹500 and ₹516.

The contract has been moving within these levels for about a month now and as long as it stays so, the next leg of trend will be uncertain.

Though the major trend is bullish, prolonged consolidation at current levels can increase the chance for a bearish trend-reversal.

Since there is a lack of trend, the RSI is flat. But the MACD has gradually turned southwards.

Nonetheless, the contract is trading above the important level of ₹500 and for the bears to gain traction, this level should be breached. On the other hand, the resistance at ₹516 has been a roadblock for the bulls.

Considering these factors, traders can stay on the fence until the contract moves out of the range. Above ₹516, it might appreciate to ₹530; below ₹500, the support is at ₹488.

NCDEX-RM seed (₹5,081)

The September futures of RM seed (mustard seed) in the National Commodities and Derivatives Exchange (NCDEX) opened with a gap-down last week and the contract largely oscillated between ₹5,000 and ₹5,125.

Nevertheless, the trend is bullish, and the contract is highly likely to regain momentum and resume the uptrend. Substantiating the positive bias, the RSI and the MACD in the daily chart are in their respective bullish zones.

Since the major trend is upward and the contract remains above the important level of ₹5,000, traders can retain the positive outlook and initiate fresh long positions with a stop-loss at ₹4,950.

On the upside, the contract is likely to head towards ₹5,300 in the forthcoming sessions.

Published on August 16, 2020

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