Commodity Analysis

Gold at a critical juncture

Akhil Nallamuthu | Updated on July 19, 2020 Published on July 19, 2020

The August futures of the metal face a key barrier at ₹50,000; contract shows weakness

It was a mixed bag for Indian commodities market last week.

Since the major commodities did not see much action, the iCOMDEX, the composite index of the Multi Commodity Exchange (MCX), remained flat; it ended the week with a half a per cent gain.

MCX-Crude (₹3,073)

The trend in August futures of crude oil in MCX was flat and it largely moved in a tight range between ₹2,980 and ₹3,100.

Unless the contract breaches ₹3,100, it cannot sustain a rally; also, a prolonged consolidation might lead to bulls giving away to bears, resulting in a price correction. In such a case, ₹2,850 will be very critical base as a break below this level can turn the outlook negative, at least in the short-term.

Notably, the 50-day moving average (DMA) is at ₹2,850.

Following the horizontal price movement, the relative strength index (RSI) and the moving average convergence divergence (MACD) indicator in the daily chart remain flat. Considering these factors, traders remain on the sidelines. A breakout of ₹3,100 can bring back buying interest, taking the contract to ₹3,380; whereas, a break below ₹2,850 can take the price to ₹2,650.

MCX-Gold (₹48,967)

In the past few trading sessions, the August futures of gold in MCX appears to be consolidating between ₹48,700 and ₹49,300.

But the price remains above the 21-DMA, indicating that the trend has a bullish bias.

Even though the trend is up, certain factors show that it might be losing strength. The daily RSI, though above the midpoint level of 50, has been flat for the past few weeks, and the MACD indicator is trending down. Also, the contract is near the psychological level of ₹50,000, and a strong push is needed to breach that level.

On one hand, the trend is bullish, but on the other hand, the contract displays weakness which could lead to a minor correction.

So, traders can either buy the contract with a stop-loss at ₹47,000 if the price moderates to ₹48,000 or buy the contract with a stop-loss at ₹48,700 if it rallies past ₹50,000.

Above ₹50,000, the contract can advance to ₹50,500 and possibly to ₹51,000.

MCX-Silver (₹52,899)

Silver futures outperformed gold last week, posting a gain of 3 per cent, whereas gold futures ended the week with a 0.2 per cent gain. But looking at the daily chart, the September futures of silver was flat after it opened with a gain last Monday. In other words, the gap-up open did not translate into a strong rally. Nevertheless, the contract is inclined to trend up as long as the price is above ₹50,000.

Supporting the bullish bias, the RSI and the MACD indicator in the daily chart remain in their respective bullish zones. Since ₹53,200 can be a minor hurdle, traders can initiate fresh long positions above that level. The stop-loss can be at ₹51,500. On the upside, the contract might rise to ₹54,300 and ₹55,000.

MCX-Copper (₹500.3)

The July futures of copper on MCX has been witnessing a stellar performance in the past two months — it has gained over 20 per cent since mid-May. Notably, the contract has inched above the important level of ₹500.

However, despite a strong beginning last week, the contract seemed sluggish as it was charting a sideways trend. Nonetheless, the contract remains bullish and will continue it uptrend until the price is above ₹485. At this level lies the 23.6 per cent Fibonacci retracement level.

The daily RSI continues to show bullishness and the MACD indicator in the daily chart retains the upward trajectory.

Hence, the contract can be expected to resume its rally. Traders can go long on the contract on declines with a stop-loss at ₹485. The resistance levels on the upside are at ₹520 and ₹535.

NCDEX-Soybean (₹3,786)

The August futures of soyabean on the National Commodities and Derivatives Exchange (NCDEX) went up last week after taking support at ₹3,735.

In the daily chart, the contract has been forming higher highs and higher lows — a bullish indication. Thus, the contract is likely to appreciate from the current levels.

The RSI and the MACD in the daily chart indicate bullishness.

The RSI is showing a fresh uptick and has crossed over the midpoint level of 50.

The MACD, though in the bearish zone, is in a strong upward trajectory, hinting at considerable upward momentum.

On the back of above reasons, traders can initiate fresh long positions on declines with stop-loss at ₹3,680. The contract could rally to ₹3,860. A breakout of this level can turn the medium-term trend bullish, possibly taking the contract to ₹4,000.

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Published on July 19, 2020
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