Commodity Analysis

Gold approaching lifetime high

Akhil Nallamuthu | Updated on February 02, 2020 Published on February 02, 2020

Silver contract for March ended flat last week, while gold futures for April rose 1.8%

MCX COMDEX, the composite commodity index of the Multi Commodity Exchange (MCX), depreciated last week to 3,833 points following a decline in crude oil prices.

The rally in gold could not restrict the downside as its weight in the index is comparatively less.

While the crude oil weight is around 33 per cent, the weight of gold is around 17 per cent.

Since crude oil is likely to witness a downside further, there seems to be no relief for the index.

In the short-term, it can fall to 3,760.

MCX-Crude (₹3,677)

The February futures of crude oil at the MCX continued to decline last week. The contract breached a key support at ₹3,780, further increasing the possibility of a decline. Notably, the 21-day moving average crossed below the 50-day moving average — a bearish indication.

The contract closed with a loss for a fourth consecutive week. The moving average convergence divergence indicator in the daily chart shows a substantial bearish momentum as it extends deep into the negative territory.

The trend is clearly bearish. But the daily relative strength index (RSI) has got into over-sold levels and the contract might see a pull-back.

Traders can short the contract with a stop-loss at ₹4,000 if it rallies to ₹3,880. On the downside, the contract can weaken to ₹3,600. Below that level, it can fall to ₹3,500.

MCX-Gold (₹41,205)

Gold rallied and closed with a gain for a third consecutive week. The April contract at the MCX rallied past an important level of ₹41,000 after a decline and it is approaching a lifetime high of ₹41,567.

Last week, the price bounced from the 21-day moving average support at ₹40,200 level. The uptrend seems to be gaining momentum as indicated by the daily RSI, which is showing an uptick.

As the outlook remains bullish, one can initiate fresh long positions on declines with a stop-loss at ₹40,300. The support below that level is at ₹40,000 — the 38.2 per cent Fibonacci retracement level of the previous uptrend.

On the upside, the contract will most likely breakout of its previous high at ₹41,567 and rally to ₹42,000. Above that level, it can move to ₹42,380.

MCX-Silver (₹47,118)

The silver contract underperformed gold last week. On a close-to-close basis, the silver futures at the MCX was flat, whereas the gold futures contract gained 1.8 per cent.

The March contract of silver, during the first half of the week, broke below an important support at ₹45,735 and slipped below both the 21- and 50-day moving averages. However, the contract rebounded, making the breakdown invalid, and closed at ₹47,118.

Though the contract has closed above ₹47,000, the breakout is not convincing. For the contract to establish a rally, it must sustain above ₹47,000 for the next few sessions. However, one can take a bullish view until the contract price stays above ₹45,700, as it is a strong support. Thus, traders can buy the contract on declines with a stop-loss at ₹45,600. On the upside, the near-term targets can be at ₹48,100 and ₹49,000.

MCX-Copper (₹426.3)

The copper futures continue to exhibit weakness. The price of February contract declined below an important level of ₹430 last week, opening the door for further depreciation. While the RSI stays flat, the moving average convergence divergence indicator in the daily chart continues to indicate good downward momentum. Thus, the outlook remains negative.

Traders can either sell the contract with ₹445 as the stop-loss if it rises to ₹435, or sell the contract with a tight stop-loss if it decisively breaks below ₹425.

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Published on February 02, 2020
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