Derivatives

Near-term outlook turns bleak for gold

Akhil Nallamuthu | Updated on November 29, 2020 Published on November 29, 2020

Gold ingots on brass scale on dark background   -  nambitomo

The futures contract expiring in February has breached the crucial support of ₹50,000

Last week, the energy commodities advanced substantially whereas the precious metals witnessed downward pressure. Despite the rally in the price of crude oil, the largest component of the iCOMDEX composite index on the Multi Commodity Exchange (MCX), the index was dragged by gold and silver.

As a result, the index registered a loss of 1.2 per cent over the previous week. Going ahead, the index can be volatile as two of the largest components,crude oil and gold, have opposite outlook.

MCX-Crude (₹3,364)

The December futures contract of crude oil broke out of the resistance at ₹3,170 and marked an intra-week high of ₹3,415, before moderating a bit and closing the week at ₹3,364. Thus, the contract has closed in the green for four consecutive weeks, indicating positive momentum.

The daily relative strength index (RSI) looks steady and lies above the midpoint level of 50 and also, the moving average convergence divergence (MACD) indicator on the daily chart continues to move northwards.

Since the trend is bullish, traders can initiate fresh long positions in declines with stop-loss at ₹3,220. On the upside, the contract is likely to rally to ₹3,500 and above that level it can touch ₹3,550.

MCX-Gold (₹48,099)

Gold faced considerable selling pressure and consequently, the futures contract expiring in February 2021 tumbled below the key support band of ₹49,600 and ₹50,000. This has turned the short-term trend negative and opened the door for further decline.

Corroborating the downtrend, the daily RSI has fallen in tandem with the contract and it now stays below the midpoint level of 50. The moving average convergence divergence indicator on the daily chart has slipped into the negative territory.

Considering the above factors, traders can take a bearish view and short the contract on rallies with stop-loss at ₹49,600. From the current levels, the price is likely to decline to ₹47,200. Below that level ₹46,500 and ₹46,000 can be the support levels.

MCX-Silver (₹60,259)

Like gold, the selling pressure was also seen in silver and consequently, the futures contract of the metal expiring in March 2021 registered a loss last week. But the price action looks weak and the likelihood of a decline from the current level looks high.

Supporting the downward bias, the MACD indicator on the daily chart has entered the bearish zone and it is now showing a fresh downtick. Similarly, the daily RSI has plunged into the negative zone and pointing downwards.

Given the above factors, the contract can be expected to slip below the ₹60,000-mark. But since one can always be better off if there are confirmations, traders can wait for the contract to breach the support of ₹60,000 before going short. Hence, sell the contract with stop-loss at ₹62,600 if it breaks below ₹60,000. Below ₹60,000 supports are seen at ₹58,000 and ₹56,000.

MCX-Copper (₹578)

Extending the rally, the December futures of copper advanced last week and closed at nearly the highest price registered during the week. This is an indication of strong upward momentum and so the contract has good chance of advancing further.

Substantiating the positive outlook, the daily RSI has been steadily moving up along with the price and the MACD indicator on the daily chart shows significant strength in the uptrend.

Since the major trend is bullish traders can be inclined to uptrend and initiate fresh long positions in declines with stop-loss at ₹560.

As bulls seems to be in the driving seat, the contract has the potential to touch ₹600.

NCDEX-Soybean (₹4,424)

After registering a high of ₹4,561 a couple of weeks ago, the December contract of soybean on the National Commodities and Derivatives Exchange (NCDEX) has been on a decline. However, the contract took support of ₹4,340 and rebounded last week and closed at ₹4,424.

The price band of ₹4,340 and ₹4,370 can be a significant base. The contract can be considered bullish until price stays above this level. Supporting the positive bias, the daily RSI is showing a fresh uptick and the MACD indicator on the daily chart lies in the bullish zone. Considering these factors, traders can go long in the contract in declines with stop-loss at ₹4,270. The contract is likely to retest the previous high of ₹4,561 and subsequently it can even move up to ₹4,600.

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Published on November 29, 2020
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