Commodity Analysis

Gold shackled in a narrow price band

Akhil Nallamuthu | Updated on November 22, 2020 Published on November 22, 2020

While the precious metals looked weak, most of the other commodity groups gained last week. As a result, the iCOMDEX, the composite index on the Multi Commodity Exchange of India (MCX), advanced by a little over three-fourth of a per cent.

Positive close in the crude oil contract helped the index to gain since oil is the largest component with over one-third of the total weight. Going ahead, the index might stay flat as the price action of crude oil and gold hint at the possibility of a consolidation.

MCX-Crude (₹3,129)

While the December futures contract of crude oil on MCX posted gains last week, it was largely due to the gap-up open. Post positive open, the contract could not extend the gain and was trading within ₹3,070 and ₹3,170. That said, even though the contract has closed above ₹3,100, the breakout does not seem decisive.

Nevertheless, the price is above the 21-day moving average (DMA) and the relative strength index (RSI) and the moving average convergence divergence (MACD) indicators on the daily chart stay in their respective bullish zones.

Though there is a little bit of bullishness in the price action, the contract should breach ₹3,170 to establish a sustainable rally, i.e., it should move out of the sideways range. Hence, traders can wait for now and buy the contract with a stop-loss at ₹3,070 if it breaks out of ₹3,170. Above this level, it can rally to ₹3,250 and ₹3,300.

MCX-Gold (₹50,212)

The December futures contract of gold on MCX inched down last week and closed at ₹50,212 versus the previous week’s close of ₹50,986. Nonetheless, it continues to trade within the range ₹50,000 and ₹51,400 and unless either of these levels is breached, the next leg of trend cannot be confirmed.

Because of the horizontal price movement, the daily RSI remains flat and the MACD indicator on the daily chart is hovering in the neutral region. But the major trend is bullish, and it will be inclined to go upward as long as price stays above ₹50,000.

Though the overall trend is bullish, the contract should break out of ₹51,400 to extend the rally. Hence, traders can stay on the fence for now and initiate fresh long positions with a stop-loss at ₹50,000 if the contract breaks out of the resistance at ₹51,400. Above this level, it can rise to ₹52,500 and ₹53,800.

MCX-Silver (₹62,158)

Like gold futures, the December futures contract of silver on MCX declined last week and closed at ₹62,158 versus the previous week’s close of ₹63,801, but lies within the sideways range of ₹60,000 and ₹64,000. Until the contract stays within this price band, the next leg of trend will remain uncertain.

The RSI and MACD are flat on the daily chart and both the indicators are hovering in the neutral region. Nevertheless, the overall trend is bullish and ₹60,000 is the key base for the contract.

Considering the prevailing price action, traders can stay on the fence now and go long in the contract if it decisively breaches the resistance at ₹64,000; stop-loss can be maintained at ₹62,000. A breakout of ₹64,000 can take the contract to ₹66,500 and possibly to ₹70,000 – a key barrier.

MCX-Copper (₹559.9)

Post breaking out of the resistance of ₹540 a couple of weeks ago, the December futures contract of copper on MCX was largely moving in a sideways trend. But last Friday, the contract rallied and closed above the resistance of ₹550, turning the outlook positive.

The latest breakout has led to the daily RSI showing a fresh uptick. The MACD indicator on the daily chart is showing renewed bullish momentum. Also, the contract has been consistently forming higher highs and higher lows.

The above factors show that there is more fuel left and the price could go higher. Hence, traders can go long in declines with a stop-loss at ₹540. On the upside, the contract is likely to appreciate to ₹580 and if the momentum sustains, it can even touch ₹600.

NCDEX-Soybean (₹4,487)

The December futures contract of soybean on the National Commodities and Derivatives Exchange (NCDEX) has been rallying since early October. But it entered a consolidation phase before a couple of weeks and started to fluctuate between ₹4,250 and ₹4,415. Last week, the contract has broken out of the range, opening the door for further strengthening.

Supporting the positive outlook, the daily RSI is showing a fresh uptick and remains above the midpoint level of 50. Moreover, the MACD indicator hovers in the positive region.

Considering the above factors, traders can initiate fresh long positions in the contract with stop-loss at ₹4,350. A rally from here can take the contract higher to ₹4,600 and a breakout of this level can even lift the contract to ₹4,650 in the short run.

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Published on November 22, 2020
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