Commodity Analysis

Gold stays in a consolidation channel

Akhil Nallamuthu | Updated on November 24, 2019 Published on November 24, 2019

The yellow metal is not expected to trend until it breaches ₹37,206 or ₹39,000

As bullion continued to be sluggish, crude oil prices played a greater role in influencing the MCX COMDEX, the composite commodity index of the Multi Commodity Exchange.

During the past week, the index declined along with crude price, and bounced from the key level of 3,900.

MCX-Crude (₹4,169)

The December futures contract of crude oil declined during the first half of the week and rebounded during the latter part, closing the week marginally higher.

The decline was arrested by a support at ₹4,000, where the 50-day moving average coincides. The daily relative strength index (RSI) shows an uptick, but the moving average convergence divergence indicator is showing signs of weakness.

As we can observe, the price action hints that the commodity can gain in the coming days. On the upside, the contract faces resistance at ₹4,200. The 61.8 per cent Fibonacci retracement level lies at that price. If price breaks out of ₹4,200, the contract will most likely appreciate to ₹4,314.

However, if the resistance exerts downward pressure, the contract might weaken to ₹4,100, below which the support is at ₹4,000.

MCX-Gold (₹37,895)

Gold continues to move in a sideways channel and the December futures contract of the yellow metal continues to fluctuate between ₹38,650 and ₹37,690. The sideways trend has been in place since the beginning of October.

Thus, the broader range between ₹37,206 and ₹39,000 is still valid and holds the key for determining the direction of the next leg of trend. The RSI and the moving average convergence divergence indicator stays flat as price continues to be sluggish.

If the contract breaches the upper limit of the range at ₹39,000, it can result in a rally taking the price to ₹40,000.

However, if the contract breaks below the lower limit of the range at ₹37,206, the medium-term trend of gold could turn bearish, dragging the price to ₹36,310.

MCX-Silver (₹44,480)

Like gold, silver too traded in a tight range in the past week. The December futures contract of the metal seems to be contained between two key levels at ₹43,470 and ₹44,800. Unless the contract breaks either of these levels, it cannot be expected to establish a trend in any direction. Noticeably, the price remains below both the 21- and 50-DMA and the daily RSI is below the mid-point level of 50, indicating a downward bias. But the price must breach ₹43,470 for confirmation.

If the contract breaks out of the resistance at ₹44,800, it will most likely appreciate to ₹46,000. Above the level, the resistance is at ₹46,950. However, a break below the support at ₹43,470 will turn the medium-term bearish, resulting in the price tumbling to ₹42,620. The immediate support below that level is at ₹42,000.

MCX-Copper (₹436)

After consolidating within a range between ₹442.7 and ₹451, the December futures contract of copper broke below the support and weakened through the past week. Closing the week at ₹436, the contract has also taken down the support at ₹438.4, opening the door for further weakness.

The negative bias is corroborated by the daily RSI and moving average convergence divergence indicator, as it continues to head lower.

Even though the price action is substantially bearish, the contract can be expected to retrace ₹440 before declining further. On the downside, the support is at ₹431. However, if the pullback extended beyond ₹440, the contract will retest the lower limit of the earlier range within which it was trading i.e. at ₹442.7

NCDEX-Soyabean (₹4,014)

The price of soyabean, which has been rallying since the beginning of September, has been consolidating for the past two weeks. The December futures contract of soybean continues to move in a sideways trend between ₹3,927 and ₹4,085.

The 23.6 per cent Fibonacci retracement level of the previous bullish trend is at ₹3,952, making the price band between ₹3,927 and ₹3,952 a support. Hence, until the price trades above the support band, the trend will be bullish. However, a prolonged consolidation can lead to a trend reversal, as we can already witness weakness in the daily relative strength index.

If the contract price breaks out of the range top at ₹4,085, it can potentially lead to a rally towards ₹4,240. Alternatively, if the price breaks below the range bottom at ₹3,927, it can result in short-term downtrend, dragging the price to ₹3,793.

Published on November 24, 2019
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