Commodity Analysis

Tide turns in favour of gold

Akhil Nallamuthu | Updated on May 17, 2020 Published on May 17, 2020

June futures of gold registered a fresh one-year high of ₹47,462 last week

The iCOMDEX composite index of the Multi Commodity Exchange (MCX) gained nearly 3 per cent last week as the price of crude oil and gold, which constitutes about 50 per cent weight of the index, rallied sharply.

Both the commodities are likely to extend the rally, which can lift the index further in the week ahead.

MCX-Crude (₹2,267)

The June futures contract of crude oil in MCX advanced last week and broke out of the critical resistance at ₹2,000, opening the door for further strengthening. Currently trading at ₹2,267, it is testing the 50-day moving average (DMA) resistance. A break above this level can intensify the rally.

The daily relative strength index (RSI) has been steadily rising and has moved past the midpoint level of 50. The moving average convergence divergence (MACD) indicator in the daily chart is in a strong upward trajectory. The contract is likely to gain during the upcoming trading sessions.

So, traders can go long on declines with a stop-loss at ₹1,920. On the upside, the resistance levels are at ₹2,400 and ₹2,570 — the 38.2 per cent Fibonacci retracement of the previous downtrend.

MCX-Gold (₹47,381)

The June futures contract of gold, after opening the week on a sluggish note, rallied sharply during the second half of the week. It registered a fresh one-year high of ₹47,462 on Friday, before ending the session at ₹47,381. This is the highest weekly close for a gold futures contract.

The price action in the daily chart indicates further rally. The bullish bias is reinforced by the daily RSI, which is showing a fresh uptick.

The MACD indicator, which had indicated weakness for the past couple of weeks, seems to be turning its trajectory upwards.

The above factors indicate a strong uptrend, and so traders can buy the contract on declines with a stop-loss at ₹46,000. The contract might rally to ₹48,000 and ₹48,920.

MCX-Silver (₹46,718)

The July futures contract of silver, which began the week on a flat note, rallied sharply towards the end of the week. In the daily chart, the contract has made higher peak as it marked an intra-week high of ₹46,855 as against its previous high of ₹45,030.

For a second consecutive week, the silver futures (gained about 7.9 per cent) has outperformed the gold futures (gained 3.4 per cent).

The RSI and the MACD indicator in the daily chart are signalling a strong uptrend. The RSI is showing a fresh uptick whereas the MACD indicator has entered the positive territory and hints at a fresh bullish momentum.

As there are indications of a possibly rally, traders can buy the contract on declines with a stop-loss at ₹45,000.

The resistance levels on the upside are at ₹48,300 and ₹50,000, which can be the potential targets.

MCX-Copper (₹401)

The May futures contract of copper has been in a sideways trend for the past three weeks. It has been oscillating between ₹395 and ₹410. As the price is moving in a range, the 21- and 50-DMAs have contracted towards each other and now coincide at ₹403. Moreover, the 50 per cent Fibonacci retracement level of the previous down-swing is at ₹403.

As there is a lack of trend, the RSI and the MACD indicator in the daily chart remain flat. While the RSI is below the midpoint level of 50, the MACD indicator is inclined towards the positive region.

Unless the contract breaches either ₹395 or ₹410, the next leg of trend cannot be confirmed. Until then, traders can stay on the sidelines. The resistance above ₹410 is at ₹426 whereas the support below ₹395 is at ₹380.

NCDEX-Soybean (₹3,806)

The June futures contract of soyabean in the National Commodities and Derivatives Exchange (NCDEX), oscillating between ₹3,600 and ₹3,900, has been in a sideways trend for almost two months. At ₹3,600 lies the 38.2 per cent Fibonacci retracement of the previous downtrend, making it a considerable support.

The trading range has become tighter, contracting to ₹3,720 and ₹3,825, during the past three weeks. Since the trend is flat, the RSI and the MACD indicator in the daily chart are in the neutral region.

Hence, traders can hold back fresh positions until either ₹3,600 or ₹3,900 is breached. The resistance above ₹3,900 is at ₹4,100, whereas below ₹3,600, the support is at ₹3,500.

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Published on May 17, 2020
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