Commodity Analysis

Gold might regain upward momentum

Akhil Nallamuthu | Updated on March 01, 2020 Published on March 01, 2020

Despite its decline last week, the charts suggest a possible recovery

The iCOMDEX composite index of the Multi Commodity Exchange (MCX) slumped, as the price of two of its major components — crude oil (33 per cent weight) and gold (17 per cent weight) — tumbled last week.

The index dropped from 10,243 to 9,505, losing a little over 7 per cent.

While the bearish outlook for crude oil can act as a dampener going forward, a rally in gold can offer some support. But overall, the index can be slightly bearish.

MCX-Crude (₹3,263)

The resistance at ₹3,950 — the 38.2 per cent Fibonacci retracement level of the previous downtrend — capped the gains in the March futures contract of crude oil. The contract declined sharply last week and breached the prior low of ₹3,562, forming a new low in the daily chart.

Further, like the contract price, the daily relative strength index (RSI) has fallen sharply and the moving average convergence divergence (MACD) indicator in the daily chart is hinting that bears have regained traction.

Considering these factors, traders can take a bearish view. But rather than selling the contract at the current levels, initiate shorts with a stop-loss at ₹3,600 on corrective rallies, for a better risk-reward ratio.

The nearest support from the current market price is at ₹3,000.

MCX-Gold (₹41,397)

Gold opened last week on a positive note as the April futures contract of the yellow metal registered a fresh one-year high of ₹43,788 last Monday. From then on, the contract began to consolidate, and declined towards the end of the week, resulting in a negative weekly close.

However, the overall trend remains bullish and the contract has its 21-day moving average support at ₹41,300.Though the daily RSI has taken a downward trajectory, it remains above the midpoint level of 50. Similarly, though the MACD in the daily chart shows signs of bulls losing sheen, remains in the positive territory.

Traders can make use of the correction to go long in the contract with a stop-loss at ₹39,900.

The potential targets on the upside can be ₹42,260 and ₹43,000.

MCX-Silver (₹44,403)

Like gold, the May futures contract of silver opened last week on the front foot and registered a five-month high of ₹50,123 last Monday. But an abrupt change in trend resulted in the contract crashing around 9 per cent during the week, underperforming gold futures which posted a loss of nearly 3 per cent.

The daily RSI has dropped into the bear zone and the MACD in the daily chart has entered the negative region. But the contract has a substantial support at ₹43,900. So, despite bearish indications, traders can buy the contract at the current levels on the back of a strong support.

Go for a tight stop-loss as a break below ₹43,900 can result in a considerable fall. On the upside, the resistance levels are at ₹46,000 and ₹47,780.

MCX-Copper (₹421.8)

Last Monday, the March futures contract of copper fell below the range between ₹430 and ₹440 and declined throughout the week. The contract even marked a lower low in the daily chart at ₹415.3, compared with its previous low of ₹421 made in the beginning of the month.

The price has fallen below the 21-day moving average. Also, the daily RSI and the MACD indicator in the daily chart has gone into bearish zone.

Though there are indications of a further decline, ₹420 is a good support, and a further decline can be confirmed only if the price closes below that level on a daily basis. So, traders can sell the contract with a stop-loss at ₹428 if it breaches the support at ₹420. Short-term targets can be at ₹412 and ₹400.

NCDEX-Soybean (₹3,708)

After two weeks of consolidation, the March futures contract of soyabean at the National Commodities and Derivatives Exchange (NCDEX) declined and broke below the support at ₹3,800, renewing the bearish momentum. This is corroborated by the MACD indicator in the daily chart as it has dropped further into the bearish zone.

The daily RSI stays in the negative zone. Traders can continue to take a bearish view and short the contract on rallies with a stop-loss at ₹3,925.

The contract is expected to weaken to ₹3,600 in the coming days. Below that level, the price might decline to ₹3,530.

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Published on March 01, 2020
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