Commodity Analysis

Why gold remains in consolidation phase

Akhil Nallamuthu | Updated on September 20, 2020 Published on September 20, 2020

October futures has been oscillating in the band between ₹50,600 and ₹52,100 for about a month

The commodities market was largely biased towards upside, the crude oil was the best performer last week. Since crude oil, the largest component, rallied sharply, the iCOMDEX, composite index of the Multi Commodity Exchange of India (MCX), was positive, posting a gain of 1.7 per cent.

The second-largest component, gold, was largely flat and continues to stay in the sideways trend.

MCX-Crude (₹3,017)

The October futures of crude oil on MCX, after beginning on a flat note last week, saw a sharp rally in price. The price has closed above the important level of ₹3,000.

However, the overall trend will be inclined to downside. Following the rally, the daily relative strength index (RSI) and the moving average convergence divergence (MACD) indicators on the daily chart, reversing higher.

By looking at the price action, traders can stay on the fence until either ₹3,000 or ₹3,160 is taken out. The direction of break can be the indication of the next leg of trend. A breakout of ₹3,160 can lift the contract to ₹3,300, whereas a break below ₹3,000 can confirm the resumption of downtrend, dragging the contract to ₹2,860 and ₹2,750.

MCX-Gold (₹51,715)

The October futures of gold on MCX extended the consolidation phase last week as well. The contract has been largely oscillating within ₹50,600 and ₹52,100 for about a month. Immediately below ₹50,600 is the important psychological level of ₹50,000. So, unless either ₹50,000 or ₹52,100 is breached, the next swing in price will remain uncertain.

But the major trend will remain bullish as long as the price stays above ₹50,000. Given the price behaviour, traders can execute a range-trading strategy until either of ₹50,000 or ₹52,100 is breached. The resistance levels above ₹52,100 are at ₹53,000 and ₹54,000, whereas the support levels below ₹50,000 are at ₹48,900 and ₹48,000.

MCX-Silver (₹67,877)

Like gold futures, the December futures of silver on MCX has been moving in a narrow range for the past one month. The price action indicates a clear lack of trend where it has been traversing between ₹66,000 and ₹71,500.

Even though the price is below the 21-day moving average (DMA), the overall bull trend will be intact as long as the price is above ₹62,000.

Following the sluggish price action, the RSI and the MACD indicators on the daily chart are flat.

Considering the above factors, traders can adopt a range-trading strategy until the contract continues to trade within ₹66,000 and ₹71,500. While the breakout of ₹71,500 can lift the contract to ₹72,700 and ₹74,000, a break below the support of ₹66,000 can drag the contract to ₹63,400. The support below that level is at ₹62,000.

MCX-Copper (₹536.8)

The upward momentum in September futures contract of copper strengthens as it decisively broke out of the resistance at ₹530 last week. The price has been fluctuating between ₹510 and ₹530 since mid-August. The recent breakout has opened the door for further rally. Supportive of the positive bias, the daily RSI is showing a positive outlook.

Since the contract will most likely advance during the forthcoming sessions, traders can be positive and initiate fresh long positions on declines with a stop-loss at ₹520. On the upside, the price could rally to ₹550.

A breakout of ₹550 can result in a sharp uptrend, possibly taking the contract to ₹560.

NCDEX-Chana (₹5,119)

The October futures of chana on the National Commodities and Derivatives Exchange (NCDEX), which has been in a strong rally since early August, witnessed a price correction in the first week of current month. But it quickly regained momentum and registered a fresh high of ₹5,245 last week. Since then, the contract has been moving in a sideways trend between ₹5,100 and ₹5,180.

Hence, the contract should breach ₹5,180 to confirm that the bulls have regained strength. Considering the above factors, traders can initiate fresh long positions if the contract breaks out of ₹5,180.

Above that level, the contract can rally to ₹5,250 and ₹5,300.

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Published on September 20, 2020
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