Commodity Analysis

Gold struggles to move higher

Akhil Nallamuthu | Updated on July 05, 2020 Published on July 05, 2020

The base at ₹47,650 is a crucial support; traders should be cautiously bullish

The iCOMDEX, the composite index of the Multi Commodity Exchange (MCX), was hovering around the 9,000-level last week. This was on the back of two of its largest components —– crude oil and gold — consolidating and remaining in a sideways movement. This is likely to continue until a clear trend emerges in these commodities.

MCX-Crude (₹3,034)

The July futures of crude oil on MCX marginally gained last week.

While the contract is above the 21-day moving average (DMA) and has formed a higher low in the daily chart, it has a significant resistance at ₹3,100.

So, the price should break out of this level to establish a sustainable rally.

Despite the contract moving past ₹3,000, the relative strength index (RSI) and the moving average convergence divergence (MACD) indicator in the daily chart hint that bulls are losing ground.

Hence, traders should wait for fresh bullish confirmation. Traders can go long with a stop-loss at ₹3,000 if the contract breaches the resistance at ₹3,100.

The resistances above ₹3,100 are at ₹3,250 and ₹3,340.

MCX-Gold (₹48,046)

The August futures of gold on MCX went past its previous high of ₹48,333 to set a fresh high of ₹48,982 last Wednesday. However, unable to sustain the level, the contract declined and ended the week just above ₹48,000. Though the price remains above the 21-day moving average and the recent trend has been bullish, there are a few indications that indicate otherwise.

Unlike the price, the daily RSI has not been rising. In fact, it is showing a fresh downtick.

The MACD indicator, which was tracing an upward path, is turning its trajectory downward. Nevertheless, the major trend is up, and the contract has a crucial support at ₹47,650. As long as it stays above that level, the possibility of a further rally cannot be ruled out.

Traders should be cautiously bullish and buy the contract with a stop-loss at ₹47,500 if it breaks ₹48,600. On the upside, the contract can rally to ₹50,000.

MCX-Silver (₹49,177)

The September futures of silver on MCX, after briefly trading above the resistance of ₹50,000, closed the week at ₹49,177. In effect, the contract continues to oscillate between ₹47,300 and ₹50,000.

Unless the price breaches either of these levels, the next leg of trend will remain uncertain. At ₹47,300, the 50-DMA and the 23.6 per cent Fibonacci retracement level coincide, making it a significant support.

The daily RSI, though above the midpoint level of 50, is flat, whereas the MACD indicator, though it lies in the positive territory, is tracing a downward trajectory. As the trend is largely sideways, traders can hold back fresh positions until either ₹47,300 or ₹50,000 is breached.

Above ₹50,000, the contract might rally to ₹51,700; a break below ₹47,300 could drag the price to ₹45,400.

MCX-Copper (₹459.1)

The July futures of copper in MCX, after opening with a gap-up, rallied to register an intra-week high of ₹469.4. But the contract faced selling pressure and depreciated towards the end of the week, giving up most of the weekly gain.

Yet, the price is above the support of ₹450.

Even as the contract stays above ₹450, there are signs of bears gaining grip. The daily RSI is showing a potential bearish divergence and a fresh downtick.

The MACD indicator is now turning the trajectory downward after flattening in the week before. Also, in the weekly chart, the contract has formed a shooting star candlestick pattern, indicating a possible bearish trend-reversal. Hence, traders can initiate fresh short positions on rallies with a stop-loss at ₹470. The primary target can be the nearest support at ₹450. Below that level, the sell-off could intensify, dragging the contract to ₹440.

NCDEX-Soybean (₹3,746)

The July futures of soyabean in the National Commodities and Derivatives Exchange (NCDEX), which declined initially, found support at ₹3,700 last week.

However, the rally was not significant as the contract stopped short of breaking above ₹3,800.

Hence, the contract continues to trade sideways.

Though the contract remained flat, the RSI and the MACD in the daily chart display bearish bias. While the RSI has slipped below the midpoint level of 50, the MACD has entered the bearish territory as well. Hence, a break below the support of ₹3,700 might result in a sharp fall.

So, traders can sell the contract if it breaks below the support of ₹3,700. The stop-loss can be at ₹3,800. On the downside, ₹3,600 and ₹3,550 are potential support levels.

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Published on July 05, 2020
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