Commodity Analysis

Will the downswing in gold price continue this week?

Akhil Nallamuthu | Updated on September 27, 2020 Published on September 27, 2020

December futures slipped below ₹50,000 last week; likely to extend downswing this week

Most of the commodities witnessed a price correction last week and the precious metals were the worst performers.

The price of crude oil softened, too, and consequently the iCOMDEX, the composite index of the Multi Commodity Exchange of India (MCX), saw a considerable decline of 4.6 per cent last week.

Since crude oil and gold contribute to about half of the index, the price movement of these two commodities tends to have a significant impact on the behaviour of the index. Crude oil can remain sluggish and gold seems to have turned its short-term trend negative. Given these factors, the index might see further depreciation in the coming week.

MCX-Crude (₹2,969)

The October futures contract of crude oil on MCX, which dropped sharply last Monday, recovered from its intra-week low of ₹2,868 and closed the week higher at ₹2,969. Notably, ₹2,870 is a support level.

However, the contract can be inclined to move downtrend until the price stays below the resistance of ₹3,070.

Since the contract was largely sluggish last week, the relative strength index (RSI) and the moving average convergence divergence (MACD) indicators on the daily chart remains flat.

Though the price action hints at a possible downtrend, the contract has a support at ₹2,870. Hence, traders can initiate fresh short positions if the price breaches that support; stop-loss can be at ₹3,000. A break below ₹2,870 can drag the contract to ₹2,740. The subsequent support can be spotted at ₹2,700; resistances are at ₹3,000 and ₹3,170.

MCX-Gold (₹49,650)

The December futures contract of gold on MCX was on a decline throughout the week and depreciated 4 per cent. Consequently, it declined well below the 21-day moving average (DMA) and slipped below the psychological level of ₹50,000. Also, the 21-DMA has moved below the 50-DMA, turning the short-term outlook bearish. Hence, the contract will most likely extend the downswing during this week as well.

Following the decline in price, the daily RSI fell below the midpoint level of 50, and the MACD indicator on the daily chart, which was hovering at the neutral region, is now showing fresh signs of bearish momentum. It has slipped into the bearish zone.

Considering these factors, traders can short the contract on rallies with a stop-loss at ₹51,000. On the downside, the contract can fall to ₹48,225 and ₹47,000. The resistance above ₹50,000 are at ₹51,000 and ₹52,400.

MCX-Silver (₹59,027)

The December futures of silver on MCX tumbled by a significant 13 per cent last week as sellers dominated through the entire week. As a result, the contract weakened below the 50-DMA and closed just below the important level of ₹60,000. Notably, the 21-DMA has slipped below the 50-DMA, turning the outlook negative.

The contract registered an intra-week low of ₹56,020 before recovering to ₹59,027.

As the price declined substantially, the daily RSI followed suit. It dipped sharply and is now below the midpoint level of 50. Likewise, the MACD indicator on the daily chart, which has been flat over the past couple of weeks, has now moved into the negative territory.

These are indications of considerable bear strength.

So, traders can sell the contract on rallies with a stop-loss at ₹62,000. The price could fall to ₹56,500 and ₹54,300 in the near term.

MCX-Copper (₹516.6)

The breakout of ₹525 that the October futures contract of copper on MCX witnessed in the last but before week turned false as the price fell back below that level and declined over the past week.

The price has now weakened below the 21-DMA.

Currently trading near ₹516, the contract has a support at ₹510.The 50-DMA coincides at this level, making it a strong support. A break below this level can turn the outlook negative and the sell-off could intensify. Even as the price remains above the support of ₹510, the indicators are signalling a bearish inclination.

The daily RSI is showing a fresh downtick whereas the MACD indicator on the daily chart is charting a downward trajectory. Hence, traders can short the contract with a stop-loss at ₹520 if the price breaches the support at ₹510.

Below ₹510, the price can drop to ₹500 and could even decline to ₹485.

NCDEX-Chana (₹5,383)

The October futures of chanaon the National Commodities and Derivatives Exchange (NCDEX), which saw a sluggish beginning to the week, picked up momentum mid-week and rallied sharply.

The contract crossed over the resistance at ₹5,300 and the price action is so bullish that the momentum is likely to sustain over the upcoming week. The contract began to rally in early August, and continues to form higher highs.

Substantiating the positive outlook, the RSI and the MACD indicators on the daily chart are in their respective bullish territories.

Considering these factors, traders can go long on the contract on declines with a stop-loss at ₹5,300 and look for a potential target of ₹5,500 — a psychological level.

A breakout of this level can intensify the rally. But there is a good chance for the contract to witness profit-booking at ₹5,500 level.

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Published on September 27, 2020
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