Commodity Analysis

Gold tests a crucial resistance

Akhil Nallamuthu | Updated on October 11, 2020 Published on October 11, 2020

The December futures should break above ₹51,000 for the trend to turn bullish

The commodity market was bullish last week and consequently the iCOMDEX, the composite index on the Multi Commodity Exchange of India (MCX), gained 3.2 per cent. This was mainly backed by a strong rally in the price of crude oil, the largest component of the index.

But notably, the bullions underperformed the base metals and the energy commodities as the gain was comparatively small.

Crude oil and gold are hovering around their respective resistance levels. So, going forward, the movement in the composite index largely depends on how these two commodities react to the resistance.

MCX-Crude (₹2,960)

The October futures contract of crude oil on MCX, which had declined towards the end of September, recovered swiftly last week. The contract rallied after registering an intra-week low of ₹2,760 and went past the 21-day moving average (DMA).

Following this, the daily relative strength index (RSI) is showing a fresh uptick and the moving average convergence divergence indicator (MACD) on the daily chart has taken an upward trajectory.

While there are several indications that hint that the rally is likely to continue in the upcoming sessions, the contract faces a critical resistance at ₹3,000. Unless it decisively breaches this level, the rally may not be sustainable.

Hence, traders can wait for now and initiate fresh long positions if the contract breaks out of ₹3,000. On the upside, the contract can advance to ₹3,160.

Beyond this level, it can rise to ₹3,260. Supports from the current levels are at ₹2,860 and ₹2,740.

MCX-Gold (₹50,817)

Though the December futures contract of gold on MCX posted a marginal gain last week, the price action remained sluggish.

Currently trading at around the 21-DMA, the contract faces a substantial resistance at ₹51,000. That is, even though the long-term trend is bullish, ₹51,000 holds the key in the short run, and the price should breach this level to turn the trend in its favour.

Since the trend has been largely flat recently, the daily RSI is hovering in the neutral region.

Similarly, the MACD indicator on the daily chart remains flat, but it lies in the negative territory.

Considering the prevailing price action, traders can stay on the fence and wait for the contract to breach ₹51,000 before initiating fresh longs, i.e., buy the contract with a stop-loss at ₹50,000 if it breaks out of the resistance at ₹51,000.

In this case, the contract is likely to rally to ₹52,200. The subsequent resistance is at ₹53,500.

A notable support below ₹50,000 is at ₹49,300.

MCX-Silver (₹62,884)

Like gold futures, the December futures of silver on MCX gained marginally last week. However, the contract could not breach a resistance at ₹63,400 — the price should move above this level for it to shift the trend upwards.

The 21-DMA coincides at ₹63,400, making the resistance stronger. Both the RSI and the MACD indicators on the daily chart have been flat since the beginning of the current month, indicating a lack of trend.

Given the aforementioned factors, traders can stay on the sidelines for now. Initiate fresh long positions on the contract with a stop-loss at ₹60,000 if it breaks out of the resistance at ₹63,400. Above ₹63,400, the price is likely to rise towards the resistance of ₹66,000.

The subsequent resistance is at ₹67,500 — the 50-DMA. Support from the current levels can be spotted at ₹60,000 and ₹57,500.

MCX-Copper (₹528.1)

The October futures contract of copper on MCX, which seemed to have turned the trend bearish, invalidated the breakdown as it witnessed a sharp recovery over the past week. As a result, the contract has moved back above the important level of ₹510 and rallied above 21- and 50-DMAs.

Hence, the bulls seem to have regained traction and are likely to take the contract higher.

Corroborating the bullish bias, the daily RSI is showing a fresh uptick and lies above the midpoint level of 50.

The MACD indicator on the daily chart, which was on a downward trajectory, has turned upwards. Also, it stays in the bullish region.

Since the major trend is bullish and there are signs of renewed upward momentum, the contract is likely to cross over the prior high of ₹532.6. Hence, traders can go long on declines with a stop-loss at ₹510. In the near term, the price is likely to touch ₹545. The support below ₹510 is at ₹500.

NCDEX-Cocudakl (₹1,876)

The December futures contract of cottonseed oilcake on the National Commodities and Derivatives Exchange (NCDEX), which had been trading in a sideways trend between ₹1,785 and ₹1,850 for the past three weeks, broke out of the range last week.

This has opened the door for further strengthening. Supportive of the positive bias, the daily RSI moved over the midpoint level of 50 last week; the MACD indicator on the daily chart, whose slope has been positive, has entered the bullish region.

Considering these factors, traders can take a bullish view and initiate fresh long positions on dips with a stop-loss at ₹1,800.

On the upside, the nearest resistance the contract is likely to face is the psychological level of ₹2,000. The subsequent resistance can be ₹2,030.

Supports from the current level are at ₹1,850 and ₹1,800.

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Published on October 11, 2020
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