Commodity Analysis

Why gold is likely to scale new highs

Akhil Nallamuthu | Updated on July 26, 2020 Published on July 26, 2020

August futures of the metal on MCX will most likely move to ₹52,000

While most of the commodities showed a muted price trend last week, gold, silver and natural gas witnessed a strong rally; silver was the best-performing commodity.

The iCOMDEX, the composite index of the Multi Commodity Exchange (MCX), advanced 4 per cent, powered by the rally in precious metals which continue to make fresh highs. As the outlook is positive, the index can be expected to go up further, unless there is a sharp depreciation in crude oil which contributes the most to the index.

MCX-Crude (₹3,072)

The trend remains sideways in the August futures of crude oil on MCX. The contract briefly rallied above the resistance at ₹3,100 and registered an intra- week high of ₹3,182. But unable to build momentum, it slipped below ₹3,100 and ended the week on a flat note.

The contract is oscillating in a narrow range between ₹2,980 and ₹3,100; it should decisively breach either of these levels to establish a trend either way.

A prolonged consolidation at the current levels will increase the possibility of a decline. Already, the relative strength index (RSI) and the moving average convergence divergence (MACD) indicators in the daily chart are showing signs of weakness. So, a break below ₹2,980 can trigger considerable sell-off.

But until the contract trades within the range, fresh positions are not recommended. The resistance above ₹3,100 is at ₹3,380, whereas the support below ₹2,980 is at ₹2,650.

MCX-Gold (₹51,035)

After staying flat for almost a month, the August futures of gold on MCX rose last week and closed above the psychological mark of ₹50,000. The contract rallied throughout the last week, posting consecutive daily gains, and it looks set to extend the rally further.

Currently, the price is well above the 21-day moving average (DMA) and the indicators in the daily chart denote strong bullishness.

The RSI rose sharply along with the contract; the MACD, which was moving horizontally in the past two weeks, is now pointing upwards — a bullish indication.

As the contract appears bullish and the indicators hint at more to the upside, traders can buy the contract on declines with a stop-loss at ₹50,000. The contract will most likely move to ₹52,000. Beyond that level, it can advance to ₹52,670.

MCX-Silver (₹61,223)

Outperforming all other commodities, the price of silver skyrocketed last week, gaining nearly 16 per cent. The September futures of silver on MCX breached the resistance at ₹53,200 early on and appreciated. The rally was so strong that it went on to break out of the ₹60,000 mark and wrapped up the week at ₹61,223 after marking a fresh high of ₹62,400.

Even though the price action favours the bulls, a sharp acceleration in price could invite a minor correction before resuming the next leg of the rally. Also, the daily RSI has entered the over-bought region, but the MACD indicator retains its strong upward bias.

Considering the above factors, rather than initiating fresh long positions at current levels, traders can wait and either go long with a stop-loss at ₹60,000 if the contract breaks out of ₹62,400, or go long with a stop-loss at ₹57,000 if the contract corrects to ₹59,000.

Above ₹62,400 it can be expected to move to ₹63,600 and ₹64,200.

MCX-Copper (₹508.8)

The July futures of copper on MCX inched up last week on the back of a support at ₹500.

Thus, the price action has formed a higher high, a sign that is in line with the prevailing uptrend. The contract can remain bullish until the price is above ₹500.

While the MACD is indicating a loss in bullish momentum; the RSI has cooled off a bit from the over-bought levels. Despite these signs, the price action is in favour of the contract as it made a fresh high of ₹513.4 last week, and manages to stay above the important support of ₹500.

Hence, potential declines can be considered as fresh entry points for initiating long positions. Maintain the stop-loss at ₹486 — the 21-DMA.

The immediate hindrance for the bulls can be at ₹520, a breakout of which can lift the contract to ₹535.

NCDEX-Guar seed (₹3,832)

The August futures of guar seed on the National Commodities and Derivatives Exchange (NCDEX) has been on an uptrend since early July.

Last week, it appreciated and registered a high of ₹3,962 before closing at ₹3,832 on Friday. As the contract continues to make higher highs, the possibility of it gaining further is high.

Corroborating the bullish bias, the daily RSI is above the midpoint level of 50 and the MACD indicator is charting an upward trajectory. Given these factors, traders can initiate fresh long positions with a stop-loss at ₹3,700.

From the current levels, the contract can rise to ₹4,000. Subsequently, it can advance to ₹4,070.

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Published on July 26, 2020
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