Commodity Analysis

Gold gearing up for fresh uptrend

Akhil Nallamuthu | Updated on December 29, 2019 Published on December 29, 2019

Outlook for gold and silver becomes bullish following a positive breakout

MCX COMDEX, the composite commodity index of the Multi Commodity Exchange (MCX), has been rising, driven by the bullish trend in its major components — crude oil and gold (combined weight is around 50 per cent).

Since the outlook for crude oil and gold is bullish, the index is expected to rise in the coming days.

MCX-Crude (₹4,416)

The January futures contract of crude oil rallied last week, extending its bull run. During the past week, the contract went past a prior high at ₹4,372, making higher peaks in the daily chart — a bullish indication.

The daily relative strength index (RSI) continues to rise, in tandem with the contract price; the moving average convergence divergence indicator, too, shows reasonable upward momentum.

Thus, the outlook is positive for crude oil.

Traders are thus recommended to buy the contract on dips, with a dynamic stop-loss. That is, place the initial stop-loss at ₹4,320 and move it upwards, with a gap of 1.5 times the daily ATR (Average True Range) as the contract advances. Potential targets are at ₹4,500 and ₹4,585.

On the downside, the support levels are ₹4,365 and ₹4,300.

MCX-Gold (₹39,080)

After consolidating for a period of little over two months, gold gave a bullish breakout in the past week.

The February futures contract of the yellow metal gained throughout last week and broke out of the range between ₹37,500 and ₹38,325, opening the door for further appreciation.

The RSI is exhibiting a substantial uptick and the moving average convergence divergence indicates considerable bullish momentum.

From a trading perspective, one can initiate fresh long positions on declines with the stop-loss at ₹38,300.

Resistance, ie, the potential targets for the longs, are at ₹40,000 and ₹40,800.

If the contract price declines from the current level, it will find support at ₹38,325.

The support below that level is at ₹38,000, where both 21- and 50-day moving averages (DMAs) coincide.

MCX-Silver (₹46,966)

Like gold, the price of silver, too, rallied last week. In fact, silver outperformed gold last week as the futures contract of silver gained 4.6 per cent, whereas the futures contract of gold gained 2.9 per cent.

The March futures contract of silver breached a key resistance at ₹45,650 and sailed past both 21- and 50-DMAs.

The rising RSI in the daily chart bodes well for the bulls. The moving average convergence divergence, too, has entered the positive territory, giving silver a bullish outlook.

Hence, traders can buy the contract on dips with the stop- loss at ₹45,400. The potential target levels are ₹47,710 and ₹49,000. The 61.8 per cent Fibonacci retracement level of the previous bear trend coincides with ₹49,000, making it an important level.

On the downside, the support levels are at ₹45,650 and ₹44,240.

MCX-Copper (₹444.8)

The price of copper has been in a sideways trend for the past three weeks, and the January futures contract has been trading within two key levels at ₹442.3 and ₹451.2. But the RSI — which is slipping below the midpoint level of 50 — and the moving average convergence divergence — on the verge of entering the negative region — are hinting a bearish bias.

Also, the major trend has remained bearish since October.

However, until the contract oscillates between these two levels, the next leg of the trend cannot be confirmed. From the perspective of trading, it is recommended to stay on the sidelines until the contract moves out of the range.

The resistance above ₹451.2 is at ₹459, the whereas support below ₹442.3 is at ₹433.

NCDEX-Soyabean (₹4,414)

The January futures contract of soyabean has been advancing since October, rising from ₹3,700 to the current market price of ₹4,414. The uptrend looks steady and the contract may most likely continue to rally.

Corroborating the bullish outlook, the moving average convergence divergence continues to hint considerable upward momentum. However, one needs to be cautious, as the RSI in the daily chart is hovering in the over-bought territory.

Traders can initiate fresh long positions on declines with the stop-loss at ₹4,290 for a target of ₹4,600. If the contract softens from the current level, it will find supports at ₹4,330 and ₹4,200.

Published on December 29, 2019
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