Commodity Analysis

Gold exhibits signs of weakness

Akhil Nallamuthu | Updated on June 07, 2020 Published on June 07, 2020

The iCOMDEX composite index of the Multi Commodity Exchange (MCX) went up marginally last week as the price of crude oil, its largest component with about 33 per cent weight, rallied.

The price of gold, which has a weight of about 17 per cent, was largely flat, leaving the index under the influence of crude oil. Going forward, the index’s move could depend on how crude oil reacts to its nearest hurdle.

MCX-Crude (₹2,990)

The June futures contract of crude oil on the MCX broke out of the resistance at ₹2,570 last week and went on to post a weekly gain of a little over 16 per cent.

The contract, which has been in an uptrend since the beginning of May, displays a strong upward momentum.

However, hovering around the 50 per cent Fibonacci retracement level, the contract currently faces a critical resistance at ₹3,000.

On the back of the strong rally, the relative strength index (RSI) and the moving average convergence divergence (MACD) indicator on the daily charts are in their respective positive territories.

Considering the above factors, traders can go long with a stop-loss at ₹2,870 if the contract breaches ₹3,000.

On the upside, the contract can rally to ₹3,240 and ₹3,330 — the 61.8 per cent Fibonacci retracement level.

MCX-Gold (₹45,698)

The August futures contract of gold on the MCX has largely been consolidating since the beginning of April. Notably, the contract has been witnessing price moderation in the past three weeks.

Until the contract remains within ₹45,000 and ₹47,650, the next leg of trend will remain uncertain.

The daily RSI is showing a fresh downtick and has moved below the midpoint level of 50, whereas the MACD indicator on the daily chart, though in the positive region, has been in a downward trajectory. These factors hint at a further downside.

Though there are indications of a decline in price from here, the contract has a substantial support at ₹45,000. Also, considering that the contract is charting a sideways trend, traders can stay on the sidelines until either ₹45,000 or ₹47,650 is breached.

MCX-Silver (₹47,351)

The July futures contract of silver on the MCX, which saw its price break out of the critical resistance of ₹50,000 towards the end of last month, gave up the gains last week. The price fell back below that level, making the breakout invalid. On Friday, the contract tested the support at ₹47,000, before ending the week a little higher. The 50-day moving average (DMA) coincides with this level of ₹47,000, which makes the support significant. A break below that level can attract considerable selling interest. The RSI and the MACD indicator are showing weakness as the price declined last week.

Due to the bearish indications, one can take a bearish view on the contract.

But since it has a support at ₹47,000, traders can initiate fresh short positions with a stop-loss at ₹50,000 if the price breaches that level. Support levels can be spotted at ₹45,000 and ₹43,600.

MCX-Copper (₹433.5)

The June future contract of copper on MCX, after breaching the resistance at ₹423 last Monday, rallied throughout the week. Thus, the price action on the daily chart continues to form higher highs and higher lows and the price is well above the 21- and 50-DMAs, indicating a strong bullish momentum.

As the contract advanced, the RSI has moved further up and the MACD indicator on the daily chart is in the positive region, tracing an upward trajectory. As the indications are bullish, traders can buy the contract on dips with a stop-loss at ₹423 — the 61.8 per cent Fibonacci retracement level of the previous trend.

The nearest resistance levels on the upside are at ₹440 and ₹450.

NCDEX-Soybean (₹3,962)

The June futures contract of soyabean on the National Commodities and Derivatives Exchange (NCDEX), which had been oscillating in the range of ₹3,720 to ₹3,825 since the beginning of May, broke out on Tuesday and gained.

It also breached the critical level of ₹3,900. This has turned the short-term outlook of the commodity positive. Supporting the upward bias, the RSI and the MACD indicators on the daily chart are in their respective positive regions.

Hence, traders can initiate fresh long positions on declines with a stop-loss at ₹3,825. While ₹4,100 is the immediate resistance, a breakout can lift the contract to ₹4,200.

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Published on June 07, 2020
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