Commodity Analysis

Gold expected to consolidate in the near term

Akhil Nallamuthu | Updated on March 22, 2020 Published on March 22, 2020

While the yellow metal remained flat, silver lost 11% last week

The iCOMDEX composite index of the Multi Commodity Exchange (MCX) declined last week as the price of crude oil, its largest component, declined.

Crude oil and gold are the two major components of the index with 33 per cent and 17 per cent weight, respectively.

Gold, on the other hand, was largely flat. The index dropped to 8,122 versus its previous week close of 8,793, losing about 8 per cent. In the coming week, the index might decline as the outlook for crude oil remains weak.

MCX-Crude (₹1,938)

The April futures contract of crude oil on the MCX weakened last week as it breached a support at ₹2,240. The contract, by closing the week at ₹1,938, has also slipped below the important level of ₹2,000. While the moving average convergence divergence (MACD) indicator on the daily chart is showing a bearish bias, the daily relative strength index (RSI) has not formed a new low, unlike the contract price — an indication of bears losing strength. Nonetheless, the major trend is bearish and so the contract can be viewed with a bearish bias.

Traders can make use of the rallies to short the contract with a stop-loss at ₹2,250.

The potential targets can be at ₹1,740 and ₹1,700.

MCX-Gold (₹40,358)

The April futures contract of gold on the MCX, after declining last Monday, was largely trading in a sideways trend, and ended the week on a flat note. The contract is oscillating between ₹39,000 and ₹41,000, and unless it breaches either of these levels, the next leg of the contract cannot be confirmed.

Notably, the price has slipped below both the 21- and 50-day moving averages (DMAs), turning the outlook weak.

The daily RSI is below the midpoint level of 50 and the MACD indicator on the daily chart has entered the bearish zone.

Even though there are indications of a bearish bias, ₹39,000 is a good support. So, traders can short the contract with stop-loss at ₹40,000 if it breaches the support at ₹39,000.

The immediate support below that level is at ₹37,550.

MCX-Silver (₹35,843)

The price of silver crashed last week and the May futures contract on the MCX declined sharply last Monday. But from then on, the contract has been largely flat, fluctuating between ₹33,750 and ₹36,860.

On Wednesday, it registered an intra-day low of ₹33,580, before recovering and closing the week at ₹35,843, thus posting a weekly loss of 11 per cent.

The daily RSI hints at considerable bearish strength, whereas the MACD indicator on the daily chart indicates a strong downtrend as it has moved deep into the bearish zone.

Since ₹33,750 is acting as a support, traders can sell the contract with a stop-loss at ₹37,000 if it breaks below ₹33,750. On the downside, the nearest resistance is at ₹30,000.

MCX-Copper (₹372.7)

The March futures contract of copper on the MCX, which has been moving in a sideways range between ₹415 and ₹440 since the beginning of February, breached the lower limit of the range at ₹415 last Monday.

This triggered a sell-off that dragged the contract lower; it registered an intra-week low at ₹335.9 on Thursday. The trend has thus turned bearish.

The 21- and 50-DMAs give a bearish outlook as the price remains below these averages. Also, the daily RSI and the MACD indicators exhibit bearishness.

The RSI is in a strong downward trajectory and the MACD has fallen further into the negative zone. As the major trend is bearish and the aforementioned factors suggest more movement to the downside, traders can sell the contract on rallies with the stop-loss at ₹400. Potential targets can be at ₹358 and ₹340.

NCDEX-Soybean (₹3,518)

The April futures contract of soyabean on the National Commodities and Derivatives Exchange closed with a marginal gain last week. But the contract rules below both the 21- and 50-DMAs, maintaining the bearish outlook. The rally can be sustainable if the price breaks out of the resistance at ₹3,625.

Until then, the rally will most likely end up facing selling pressure, resulting in a decline.

Though the overall trend is bearish, there are indications that hint at bears losing strength. The daily RSI has come up sharply, in tandem with the recent rally in price; the MACD indicator, too, is exhibiting signs of the downtrend losing momentum.

Given the scenario, traders can buy the contract with a stop-loss at ₹3,500 if it decisively rallies past the resistance at ₹3,625.

Published on March 22, 2020
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