Commodity Analysis

Gold prices likely to decline

Akhil Nallamuthu | Updated on October 04, 2020 Published on October 04, 2020

December futures should move beyond ₹51,000 to establish sustainable rally

Apart from precious metals, all other commodities declined last week. Energy commodities were the worst performers with crude oil, the largest component on the iCOMDEX composite index of the Multi Commodity Exchange of India (MCX), settling with a weekly loss of 4.4 per cent. But gold, the second-largest component, gained nearly 2 per cent.

Consequently, the composite index declined and ended lower at 9,613 versus the preceding week’s close of 9,645. Though the yellow metal gained, it remains below a key resistance.

Crude oil might decline further. As a result, the index might fall during the forthcoming trading sessions.

MCX-Crude (₹2,837)

The October futures contract of crude oil on MCX fell last week after facing a critical resistance at ₹3,000. Notably, the price has dropped below the 21-day moving average (DMA), turning the outlook negative.

The price action shows that the contract is making lower highs, and indicates that further downside is on the cards.

In support of the bearish view, the daily relative strength index (RSI) has slipped below the midpoint level of 50, and the moving average convergence divergence (MACD) indicator on the daily chart lies in the bearish territory.

Considering the above factors, traders can take a bearish view and short the contract on rallies with a stop-loss at ₹3,000.

The price is likely to drop to ₹2,740 — a support level.

A breach of this level can drag the contract to ₹2,700. Resistances from the current level are at ₹3,000 and ₹3,070.

MCX-Gold (₹50,470)

The December futures contract of gold on MCX appreciated last week by taking support at ₹49,300. Even as the price crossed above the psychological level of ₹50,000, the contract faces a resistance at ₹51,000.

The 21-DMA lies at this level, making it a significant hurdle. Hence, the contract should decisively breach this level to establish a sustainable rally.

The price action on the daily chart shows that the downtrend is tracing a falling channel where the contract has been forming lower highs and lower lows — a bearish indication.

Supporting this, the daily RSI is below the midpoint level of 50 and the MACD indicator stays in the negative territory.

Until the price remains below the 21-DMA, the likelihood of a decline is high.

Considering these factors, traders can sell the contract with a stop-loss at ₹52,000. The price could drop from the current level to ₹49,300.

A break below this level can drag the contract to ₹48,000.

MCX-Silver (₹61,145)

Like gold futures, the December futures of silver on MCX gained marginally last week. But considering the decline that the contract has been witnessing since early August, last week’s up-move is minor and could be a corrective rally.

Moreover, the price stays below the 21-DMA, which indicates the short-term trend being negative. As long as the contract trades below the 21-DMA, the trend will be inclined to downtrend.

Corroborating the downward bias, the daily RSI is below the midpoint level of 50 and the MACD indicator is charting a downward trajectory and lies in the bearish territory.

Given these factors, traders can retain a bearish view and short the contract on rallies with a stop-loss at ₹65,000.

The price could deepen the fall to ₹58,000 and ₹56,500.

Resistance levels can be spotted at ₹63,400 and ₹65,000.

MCX-Copper (₹497.5)

The October futures contract of copper on MCX, which had been inching up for most part of last week, witnessed a sharp fall on Thursday. As a result, the price slipped below the key support of ₹510 and closed below the psychological level of ₹500.

This has turned the outlook negative for the contract; notably, it has closed in the red for two weeks in a row, indicating considerable bearish momentum.

Moving in tandem with the price, the daily RSI has fallen sharply and slipped below the midpoint level of 50.

It is showing a fresh downtick, hinting at the possibility of further depreciation in price.

Similarly, the MACD indicator has been moving along a downward trajectory and shows good bearish momentum.

Considering these factors, traders can go short on the contract on rallies with a stop-loss at ₹510. The price is likely to decline to ₹485 and then possibly to ₹475.

NCDEX-Chana (₹5,493)

Extending the rally, the price of October futures of chana on the National Commodities and Derivatives Exchange (NCDEX) went up last week. After registering an intra-week high of ₹5,570, the contract closed just below the important level of ₹5,500.

However, the major trend is bullish, and the price action has been rallying with substantial momentum. Hence, the chances of the contract posting more gains are high.

But there are a couple of indications that call for caution. One, the price level of ₹5,500 can act as a resistance; two, a loss of traction hinted by the daily RSI.

Nevertheless, it remains above the midpoint level of 50 and the MACD indicator is retaining its positive slope.

Considering these factors, traders can initiate fresh long positions with a stop-loss at ₹5,370 if the contract crosses over ₹5,500.

A breakout of ₹5,500 can take the contract to ₹5,700.

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Published on October 04, 2020
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