Commodity Analysis

Gold to trade with bearish bias

Akhil Nallamuthu | Updated on March 15, 2020 Published on March 15, 2020

The decline can intensify if the price slips below ₹40,000

The iCOMDEX, the composite index of the Multi Commodity Exchange (MCX), declined sharply in the past week as prices of crude oil and gold crashed.

Crude oil and gold are the two major components of the index, with 33 per cent and 17 per cent weight, respectively. On the back of the strong downtrend, the index dropped to 8,793 versus its previous week’s close of 9,783, losing about 11 per cent. Going forward, the index might consolidate with a bearish bias.

MCX-Crude (₹2,473)

The April futures contract of crude oil in MCX began last week with a crash last Monday. But since then, the contract was largely flat, trading in a range between ₹2,240 and ₹2,695.

The daily relative strength index (RSI) is at over-sold levels, potentially hinting that the downside can be limited from current levels. However, the moving average convergence divergence (MACD) in the daily chart remains in the negative territory.

Since the contract is in a consolidation phase, the next leg of the trend cannot be confirmed unless it moves out of the range.

Hence, traders can stay on the sidelines until the contract breaches either of the limits of the range. Above ₹2,695, the contract can rally to ₹3,000, whereas a break below ₹2,240 can drag it to ₹2,000.

MCX-Gold (₹40,454)

Gold price declined throughout the past week and as a result, the April futures contract of the yellow metal slipped below the key support of ₹41,300. At this price, the 50-day moving average (DMA) and the 50 per cent Fibonacci retracement of the previous bull trend coincides, making it a significant level.

On the downside, ₹40,000 is a crucial support.

As the price has slipped below the 50-DMA, the trend might have turned bearish. The daily RSI is now below the mid-point level of 50 and the MACD indicator is hinting at a further downside. Hence, traders can take a bearish view.

From the risk-reward perspective, rather than initiating shorts at current level, traders can sell the contract if the price rallies to ₹41,300 with a stop-loss at ₹42,600. Key supports are at ₹40,000 and ₹39,450.

MCX-Silver (₹40,487)

Like gold price, silver’s, too, witnessed a downtrend throughout last week. The contract price is now below both 21- and 50-DMAs.

As the price has fallen below the key support at ₹44,000, the trend will be inclined towards bearish. Adding to it, the daily price action indicates lower highs and lower lows — a bearish indication.

The MACD indicator in the daily chart has entered the negative territory and the daily RSI remains below the midpoint level of 50 and is in a downward trajectory. Rather than initiating fresh shorts at the current level, traders can sell the contract if the price rallies to ₹42,000 and place a stop-loss at ₹44,000. On the downside, the support levels are at ₹40,000 and ₹37,650.

MCX-Copper (₹421.8)

The March futures contract of copper declined during the past week. But on Friday, the contract gained, recouping some of its intra-week loss. In the daily chart, the contract seems to be fluctuating between ₹415 and ₹433; hence, until the price gets out of this range, the next leg of the trend cannot be confirmed.

The daily RSI is below the midpoint level of 50 and the MACD indicator remains in the bearish territory. Though these are bearish indications, ₹415 can act as a support, limiting the fall.

Since the contract is trading between two key levels at ₹415 and ₹433, traders can stay back from initiating fresh positions until either of these are breached. Above ₹433, the contract will face hurdles at ₹440 and ₹450, whereas ₹400 can act as a substantial support below ₹415.

NCDEX-Soybean (₹3,434)

The April futures of soyabean in the National Commodities and Derivatives Exchange (NCDEX) broke below a crucial support at ₹3,625 last week and extended the downtrend, to make an intra-week low of ₹3,228. Since the major trend is bearish, further decline in coming days is highly possible.

The MACD indicator has extended deeper into the bearish zone and the daily RSI is hinting at a bearish bias. So, traders can short the contract on rallies with a stop-loss at ₹3,625. The support levels on the downside are at ₹3,230 and ₹3,160, which can be the potential targets.

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Published on March 15, 2020
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