Bhavik Patel of Tradebulls Securities is bearish on Silver, Lead; check why

Gold: As expected, the US Federal Reserve did not fast-forward the timeline to raise their Fed funds rate. Gold prices have decoupled from the TIPS (Inflation linked Treasury bonds) and we don't expect this to continue. It would be matter of time before gold bounces as it cannot fall in an environment of falling yields.The 10-YR US Treasury yield has fallen from 1.366 per cent to 1.244 per cent in a matter of 8 trading sessions yet there is no spike in gold prices.

While wait for the outcome of the US Federal Reserve's meeting was one reason for lacklustre movement in gold, another reason for gold prices remaining under pressure was US consumer confidence index, which came better than expected in July. 

The silver market, meanwhile, is also now massively underperforming gold, with the gold/silver ratio currently trading above 72 points, a level not seen since the start of the year. Despite base metals showing healthy upside this week, silver continues to drift downside. It appears that concerns about renewed economic restrictions in response to the spread of the Delta variant of coronavirus are weighing more heavily at present.

This would also affect industrial demand for silver, which accounts for a good half of all silver demand. Currently, silver prices are below their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bearish sequential order. Speculators have cut their long positions which is not common looking at the price action. It has broken $25 and, now, next support comes at $24. For bulls to have any chance, silver needs to wipe out the losses from Monday and trade above 67,600. Until that level is not taken out, we won't recommend any positional long position.

Oil prices have held steady despite investors being worried that global demand could be dented by surging Covid-19 cases, even though supplies are tightening and vaccination rates rising. Despite OPEC+ raising production, crude oil is expected to be in deficit by the end of this year. The premium of the Brent front-month over WTI rose to its highest since May which shows tightening of market. Recenrly, the America Petroleum Institute (API) reported a larger-than-expected draw in both crude and gasoline inventories for the week. In MCX, 5,400-5,450 is the resistance and despite crude bouncing from the lows of 4,900, on daily scale, it is still making lower high and higher low pattern. For pattern to change to bullish, it needs to close above 4,950.

After touching $4, natural gas prices have retraced back. It looks as if the natural gas market is a bit exhausted, as we have fallen all the way back down below the $4.00 level after touching $4.20. With this being the case, it is likely that we will continue to see a little bit of choppy behavior. But at this point time, we are still very much in an uptrend. As long as there are still heat wave issues out in the western part of the United States, it does make quite a bit of sense that we will see further upward pressure on pullbacks, as there is no real sign the market changing anytime soon. Perhaps traders are afraid to chase the market higher at nearly a three-year high. Perhaps all of the weather news has been discounted.

Recommendations:

Sell Silver | TGT: 65,000 | Stoploss: 67,800

Silver has breached its support of $25 in COMEX and 66,300 in MCX. Trend is negative with lower high and lower low. RSI_14 is under 50 which further strengthens the case of bearish trend. It is trading under all important moving average so we would recommend short with expected downward target of 65000 and stoploss of 67800 closing basis.

Sell Lead Aug | TGT: 174 | Stoploss: 180

Lead is one of the only base metals which is underperforming. On daily scale, the trend is negative with lower low and lower high. It is trading below 20 day moving average but above 50 day moving average showing near term trend is weak. RSI_14 is just shy below 50 with no divergence. We expect weakness to continue till 174 and so we recommend short with stoploss of 180.

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Disclaimer: Bhavik Patel is Senior Commodity/Currency Research Analyst at TradeBulls Securities.Views are personal.