Commodity Analysis

Gold: Corrective phase may be ending

Akhil Nallamuthu | Updated on August 30, 2020 Published on August 30, 2020

From medium-term perspective, ₹50,000 is key for October contract; the major direction is still bullish

The iCOMDEX, the composite index of the Multi Commodity Exchange, (MCX) closed flat last week. But it witnessed considerable volatility during the week as the precious metals looked weak and the base metals were largely positive.

However, crude oil, which has the maximum weight (nearly 36 per cent) in the index, was flat.

The net effect was that the index closed at 10,162 versus previous week’s close of 10,196.

The outlook of crude oil and gold is critical for the direction of the index as they contribute to about half of the index weight.

While the yellow metal can possibly trade with an upward bias, the crude oil is likely to take a sideways path. So, by large, the contract can be expected to consolidate with a bullish bias corroborated by gold and base metals.

MCX-Crude (₹3,149)

Neither the bulls nor the bears are winning the battle as the September futures contract of crude oil in MCX continues to track a sideways path. The contract, which has been oscillating between ₹3,130 and ₹3,250 for the past one month, should breach either of the levels to give us a hint about its next major price swing.

Despite the price staying flat, the daily relative strength index (RSI) has slipped below the midpoint level of 50. Likewise, the moving average convergence divergence (MACD) indicator in the daily chart has been sliding down during the past week.

However, until the contract stays within the above- mentioned price band, traders can hold back fresh positions. If the contract rallies past ₹3,250, it can rally to ₹3,300 and ₹3,360, whereas below ₹3,130, the support levels are at ₹3,000 and ₹2,940.

MCX-Gold (₹51,448)

The October futures of gold on MCX ended last week marginally lower. The intra-week price action shows that there was not much activity in the contract. On Friday, it rebounded, taking the 50-day moving average (DMA) support and closed at ₹51,448.

Though the price has moderated from its peak, the contract had been flat in the past couple of weeks and it stays above the psychological level of ₹50,000. Until it remains so, a bear trend cannot be confirmed.

Even though there is a lack of trend, during the past two weeks, the major direction was still bullish and the risk-reward ratio at the current level is favourable to longs. So, it can be worth taking risk by initiating fresh long positions at current level with a stop-loss at ₹50,000.

On the upside, ₹53,000 can be a significant hurdle.

A breakout of this level can bring in more longs, possibly lifting the contract to ₹54,000.

MCX-Silver (₹65,976)

Like gold futures, the September futures of silver on MCX was largely moving in a sideways trend. Effectively, the contract remains within ₹63,200 and ₹68,600 — its 21-DMA.

Nevertheless, the overall trend is upward and as long as the price trades above ₹60,000, the bulls have a good chance of regaining traction, and push up the contract. The 50-DMA is at ₹60,000, making it a key level from the medium-term perspective.

The contract is now hovering around the middle of the price band of ₹63,200-₹68,600 and fresh trades on either side requires a deep stop-loss. Considering this and the fact that the major trend has not turned negative, traders can either go long with a stop-loss at ₹60,000 if the price softens to ₹63,200 or go long with a stop-loss at ₹65,000 if the price moves above ₹68,600.

MCX-Copper (₹521.5)

Despite beginning the week on the back foot last Monday, the September futures of copper on MCX quickly recovered and managed to end the week with a gain.

It took support at ₹510, where the 21-DMA lies.

So long as the price trades above the psychological level of ₹500, the contract will be inclined to the upside. Also, the price action has been forming higher highs and high lows — a bullish indication.

Supporting the positive outlook, the RSI and the MACD indicators in the daily chart are in their respective positive territories. Given these factors, traders can buy the contract on declines with a stop-loss at ₹500.

A rally from here can take it to ₹536 and potentially to ₹545 in the near term.

Stick to the stop-loss strictly as a break below ₹500 can result in a sharp drop in price.

NCDEX-RM seed (₹5,231)

The September futures of RM seed (mustard seed) in the National Commodities and Derivatives Exchange (NCDEX), which has been on an uptrend for the past couple of months, extended its upward movement last week as well. Though the gain was minimal, the price action in the daily chart continues to exhibit bullish bias and so the contract is likely to advance from the current levels.

The upward bias is corroborated by the RSI and the MACD indicators in the daily chart, as they stay in their respective bullish zones. Moreover, the contract is above the important base of ₹5,000. Hence, traders can retain the positive outlook and initiate fresh long positions with a stop-loss at ₹5,100. The contract is likely to head towards ₹5,350 in the forthcoming sessions.

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Published on August 30, 2020
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