Commodity Analysis

Gold likely to resume uptrend

Akhil Nallamuthu | Updated on January 12, 2020 Published on January 12, 2020

Outlook for gold and silver remains bullish despite correction

MCX COMDEX, the composite commodity index of the Multi Commodity Exchange (MCX), witnessed downward pressure, following a sharp fall in the price of crude oil, its largest component.

It was exaggerated, as gold, the second largest component, went into a corrective phase towards the end of last week.

However, since the outlook for its largest component remains positive despite price moderation, the index can be expected to appreciate in the coming days, once crude oil and gold (combined weight is around 50 per cent) begins to rally.

MCX-Crude (₹4,202)

The January futures contract of crude oil faced a strong resistance at ₹4,600 and the price started to decline sharply last week.

The contract fell below the 21-day moving average and is currently testing an important support at ₹4,200. This level coincides with the 50-day moving average, making the support more significant. Backing the bearish view, the daily relative strength index (RSI) has slipped below the midpoint level of 50, and the moving average convergence divergence indicator in the daily chart hints a considerable bearish momentum.

From the perspective of trading, though the contract is bearish, fresh short positions should be created only if the price breaks below ₹4,200, and place a tight stop-loss.

Below ₹4,200, the contract might decline to ₹4,000. Notably, ₹4,120 is a minor support. On the upside, the nearest resistance is at ₹4,350.

MCX-Gold (₹39,871)

Following the breakout, the gold price rallied to record levels, marking a new all-time high. The February futures contract rallied and marked a lifetime high at ₹41,293. However, the price could not sustain above ₹41,000 and it declined.

But the bull trend looks intact, as the price remains above both the 21- and 50-day moving averages despite the correction. While the daily RSI is hovering around the over-bought territory, the moving average convergence divergence indicator in the daily chart continues to exhibit strength in rally. Traders are recommended to go long in the contract using the price correction, with a stop-loss at ₹39,300. The subsequent support is at ₹38,870. On the upside, the contract will most likely rally to ₹40,800, beyond which it can appreciate to ₹41,200.

MCX-Silver (₹46,911)

Like gold, the price of silver, too, rallied, but faces a roadblock. The march futures contract of silver appreciated and broke out of the resistance at ₹48,000. But after making an intra-week high of ₹48,925, the contract fell to the current market price of ₹46,911.

The rally seem to have lost steam, as the daily RSI is showing a fresh downtick and the moving average convergence divergence indicator shows a considerable loss in momentum. The nearest support for the contract is the band between ₹45,650 and ₹46,000.

Incidentally, both the 21- and 50-day moving averages coincide with the support band, making the price range very crucial.

Traders are advised to buy the contract on the back of this support with a stop-loss at ₹45,600.

The near-term targets can be at ₹48,100 and ₹49,000 — the 61.8 per cent Fibonacci retracement level of the previous bear trend.

MCX-Copper (₹447.4)

The price of copper has been rallying since the beginning of the month, and hence, the January futures contract of the commodity went up from ₹440 levels to ₹453. The price has formed a higher peak in the daily chart, a positive indication.

Also, the 21-day moving average has crossed over the 50-day moving average, possibly turning the medium-term trend bullish.

This is corroborated by the moving average convergence divergence indicator in the daily chart, which has entered the positive region. The daily RSI stays above the midpoint level of 50. From the trading perspective, one can initiate fresh long positions on decline and place the stop-loss at ₹440 and look for a potential target at ₹457 in the coming days.

Above that level, the resistance is at ₹463. On the downside, ₹445 is a strong support.

NCDEX-Soyabean (₹4,332)

After witnessing a correction, the February contract of soyabean seems to have resumed its bull trend. During the first week of the current month, the contract price declined from ₹4,520 levels to ₹4,200, where it has the support of the 50-day moving average.

The contract bounced back from that level and formed a morning star candlestick pattern, an indication of a bullish reversal. The daily RSI has crossed above the midpoint level of 50 and the moving average convergence divergence indicator in the daily chart is showing signs of recovery.

Since the major trend is bullish and there are signs of resumption of the bull trend, traders are advised to buy the contract with the stop-loss at ₹4,190. On the upside, the contract will most likely retest ₹4,522. Beyond that level, it can advance to ₹4,600.

Published on January 12, 2020
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