Commodity outlook and recommendation by Tradebulls Sec: Buy Gold, Copper

Indian rupee has pulled back around 76 levels after touching all time low near 77 in April Future contract. RBI’s measure and government’s initiatives are helping rupee to find some footing but our currency is still vulnerable as Covid-19 cases are increasing in India. Any extension from lockdown will severely affect already struggling economy and we may see rupee depreciation accelerating. Crash in the energy market is having a spillover effect in other commodities and there is a mad dash to buy US dollar which is putting pressure on our currency. The rupee is finding resistance around 77.06 and upside momentum will continue above that level. Currently, the pullback is expected till 75.50.

Gold spot price is above $1,700 and a close below $1,670 could put downward pressure till $1,640. In MCX, we would advice to liquidate long position only below 45,000. Sell off on 21st April was due to the fact that there may have been a lot of margin calls out there. There was selling pressure across all boards where the energy market has gotten ugly, base metals since last 2 days were witnessing selling pressure and even agro market was not some bouts of profit booking. The crude oil situation has made investors running for cash and dumping commodities so that is why Dollar index has once again breached 100. There is a wait and watch attitude to see whether there’s further spillover from the energy into precious metals. Gold has recovered from its lows of 45500 and in COMEX from 1,680. Gold has room till 46,700.

Silver spot has breached its support of $14.78 and although it has recovered above its support, we still prefer gold than silver as there is still a lot of negativity attached to it due to the fact that industrial demand will be almost nothing. After all, the silver markets reflect the demand for silver in electronics and the like. Next support comes at $14.50. The price action is near to its 61.8% taken from the recent rally of 33,500 to 44,580. 40,400 is immediate support and below that we can see levels till 39,200. So exit any long position below 40,400 and go for short with a target of 39,200 and stoploss of 41,200.

Oil: The market needs oil production to fall immediately for prices to recover. The real question for the market is, how quickly that demand will come back. We don’t know that answer & the world has no space to store oil. US Energy dept is giving money to US Shale producers not to drill and leave oil underground. Volatility of 30-40% is becoming a new norm now for crude oil prices in MCX. We would advice traders not to take any positional call and keep trades intraday only. Let market settle and volatility be reduced in the vicinity of 3% to 5% before taking big trades. In Natural Gas, it’s been the second week of inventory injections. Stocks were 71.7% above the previous year’s level and 21.4% greater than the five-year average for this time of the year. The report is not bullish but the market surprised us by taking off. Prices have retraced to 139 levels after hitting its resistance of 150. If Natural gas sustains above 150, we could see prices shooting till 156-158. Natural gas has support around 135-137.

Recommendation:
 

Buy Gold around 45800 | TGT: 46,500 | Stoploss: 45,500

Gold is trading near all time high and in the past, we have seen when price action diverges far from near term moving average, we have seen price pulling back near its averages. So we are also suggesting to go long near 45800 for the expected target of 46500 and stoploss of 45500. Gold is not yet overbought as RSI_14 is at 65 with no divergence on the daily scale.

Buy Copper above 406 | TGT: 420 | Stoploss: 389

‘Bullish Engulfing’ followed by positive candlestick suggests the trend for copper has changed to positive but its recent high of 406 should be scaled before more momentum on the upside can be achieved. RSI has scaled above 50 which is also in favour of bulls and 20 and 50 EMA cross over also has happened on the daily scale. So we would suggest buying above 406 for a target of 420 and stoploss of 389

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Disclaimer:  Bhavik Patel is Sr. Technical Analyst (Commodities) at Tradebulls Securities. Views are personal.