Commodity Analysis

Gold tests a crucial support

Akhil Nallamuthu | Updated on October 06, 2019 Published on October 06, 2019

The December expiry contract registered an eight-month low last week

The commodity index of the Multi Commodity Exchange of India — iCOMDEX Composite Index — continued to witness selling pressure during the past week as it closed at 595.4, below an important support level of 600. The drag was contributed by crude oil, which is a major component of the index.

The relative strength index and the moving average convergence divergence indicator continue to signal weakness, indicating more downside in the coming days.

A further decline may find support at 589 — the 61.8 per cent Fibonacci retracement level of the previous bull trend. Only if the index reclaims 600 levels, will it open any chance for the bulls to gain traction.

MCX-Crude (₹3,735)

The October expiry futures contract of crude oil broke below a key support at ₹3,850, reaffirming the bearish trend. Downside, the price could find support in the form of a demand zone extending in the band between ₹3,550 and ₹3,600. That level is very critical as the contract has already bounced twice from that level.

Hence, if the contract attracts buying interest because of the support area, it will face a hurdle at ₹3,850. Beyond that level, it might appreciate to ₹4,050 levels. However, if the price breaks below the demand zone, sell-off will most probably intensify, dragging the price to a much lower level of ₹3,240 over the medium term. The past week’s return was negative 5.2 per cent.

MCX-Gold (₹38,333)

The December expiry futures contract registered an eight-month low of ₹37,206 last week. But it immediately recouped its losses and managed to close the week flat. The daily relative strength is hovering around the mid-point level, unable to provide any clue on the direction of price movement. The moving average convergence divergence indicator looks weak though.

Any further decline in price will find support at the previous bottom at ₹37,200 levels. Below that, the immediate support is at ₹36,200. Alternatively, an upward movement from the current levels will face a considerable resistance at ₹39,000 levels. Beyond that, the price has the potential to rise towards the psychological level of ₹40,000.

MCX-Silver (₹45,379)

The December expiry futures contract of silver registered a seven-week low of ₹43,969 in the past week. However, the metal managed to close flat for the week with a mid-week recovery. Observing the daily chart, one can lower high and lower low, extending its bearish bias.

This is further substantiated as the price continues to trade below the 50-day moving average. Also, the daily relative strength index and the moving average convergence divergence indicator indicates weakness.

The short-term trend clearly looks bearish where the contract price will most probably decline to ₹42,450.

On the other hand, if the price appreciates from the current level, it will face a resistance at the immediate level of ₹45,474 and thereafter at ₹45,900.

MCX-Copper (₹435.8)

Copper closed flat for the past week forming a doji candlestick pattern in the weekly chart. The October expiry futures contract of copper seems to have formed a base at the current price levels — between ₹432 and ₹435 — reducing the possibility of further decline. However, one needs to be cautious that the moving average convergence divergence indicator has moved into negative territory, signalling a bearish bias; the daily relative strength index formed a lower low even before the price moved lower.

So, if the price breaks below the current levels, the contract could tumble towards ₹420 levels. However, a recovery in price will take the contract to ₹440, beyond which it could appreciate further to ₹460 levels over the medium term.

NCDEX-Guar seed (₹3,852)

Guar seed is still in a bear trend, which began in August. The October expiry futures contract of guar seed broke below a support at ₹3,860 and closed the week at ₹3,852. As a result, the futures contract has posted negative returns for three consecutive weeks.

However, fresh short positions need to come with caution as the daily relative strength index is at oversold levels; but the moving average convergence divergence indicator still indicates bearishness. If the price cannot move past the resistance at ₹3,860 and declines on further selling, the contract could slump to ₹3,690 and then to ₹3,560 in coming days. Alternatively, if the contract manages to rise past ₹3,860, the rally will be capped by the resistance at ₹4,000.

Published on October 06, 2019
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