Commodity Analysis

Gold might go south

Akhil Nallamuthu | Updated on May 03, 2020 Published on May 03, 2020

A decisive break below ₹45,000 can result in a considerable downward swing

The iCOMDEX , the composite index of the Multi Commodity Exchange (MCX), lost about 1.5 per cent last week even as crude oil, its largest component with 33 per cent weight, posted a weekly gain. This is because gold, the second-largest component with 17 per cent weight, ended the week lower.

Going ahead, the index can be volatile as crude and gold are likely to move in opposite directions.

MCX-Crude (₹1,518)

The May futures contract of crude oil in MCX fell during the first half of the week and made a fresh yearly low of ₹795 on Tuesday. But the contract then recovered sharply and rallied during the latter part of the week and the contract, in fact, posted a gain on weekly basis.

The price action in the daily chart has formed a double-bottom pattern, signalling a bullish reversal.

Supporting the bullish bias, the Moving Average Convergence Divergence (MACD) indicator in the daily chart is hinting at a possible uptrend from the current levels. Also, the daily relative strength index (RSI) is showing a fresh uptick.

On the back of these bullish indications, traders can buy the contract on declines with a stop-loss at ₹1,250. The immediate hurdle can be spotted at ₹1,870, above which lies the crucial resistance of ₹2,000.

MCX-Gold (₹45,527)

The June futures contract of gold ended last week lower at ₹45,527 compared with the preceding week’s close of ₹46,527.

The price action has formed a lower high and the contract has tested the critical level of ₹45,000 twice in the past two weeks, indicating weakness.

There are signs of bulls losing traction, which can be identified with the RSI and the MACD indicators in the daily chart.

While the RSI has been moderating for the past two weeks, the MACD has turned its trajectory downwards, hinting at a bearish trend reversal.

So, a decisive break below ₹45,000 can result in a considerable downward swing. Hence, if the contract breaches that support, traders can initiate fresh short positions with a stop-loss at ₹46,000. The key support below ₹45,000 can be spotted at ₹44,000 and ₹43,700, its 50-day moving average (DMA).

MCX-Silver (₹41,597)

The July futures contract of silver closed below the important support of ₹42,000, opening the door for further weakening. Notably, the price remains below both the 21- and 50-DMAs and it has been forming lower highs, an indication of bearish bias.

The RSI and the MACD indicators, too, show signs of weakness.

The RSI has been gradually moving down, whereas the MACD indicator has entered the bearish zone.

Since the contract has breached the support at ₹42,000, traders can be bearish and short the contract on rallies with a stop-loss at ₹43,500.

On the downside, the contract has a support band between ₹39,500 and ₹40,000. Below that level, the support is at ₹38,400.

MCX-Copper (₹401.1)

The May futures contract of copper declined marginally last week.

During the week, the contract briefly traded below the important support of ₹400 and registered an intra-week low of ₹395.2, before recouping its losses and reclaiming the ₹400 level. The 21-DMA at ₹396 level has acted as a support, and as long as the contract stays above ₹400, the outlook can remain bullish.

Nevertheless, there are indications of weakness in the MACD indicator. Though it is on an upward trajectory, it hints at weakness in bullish momentum.

But the RSI has been flat for the past two weeks.

Though the contract is above the key level of ₹400, it has a strong resistance at ₹410, where the 50-DMA coincides.

So, traders can go long on the contract with a stop-loss at ₹395 if it breaks out of ₹410. While the nearest resistance is at ₹426, the subsequent resistance is at ₹435.

NCDEX-Soybean (₹3,826)

The May futures contract of soyabean in the National Commodities and Derivatives Exchange (NCDEX) is on a consolidation phase for the past one month.

It has been oscillating between ₹3,600 and ₹3,900, and unless the price breaches either of these levels, the next leg of the trend will be uncertain.

Notably, the RSI and MACD indicator on the daily chart remain in the positive territory. However, for the contract to establish a sustainable rally, it should breakout of ₹3,900.

Since the contract is charting a sideways trend, traders can hold back fresh positions until the price comes out of the range.

Above ₹3,900, the resistance levels are at ₹4,000 and ₹4,200; whereas, below ₹3,600, the support levels are at ₹3,300 and ₹3,216, its previous low.

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Published on May 03, 2020
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