Commodity outlook by Bhavik Patel of Tradebulls Securities: Buy lead, gold

Gold is trading near all time high and some pullback is expected. Instead of chasing prices at a higher level, we recommend to buy on dips near 44,300.

Indian rupee is under pressure as lockdown is affecting Indian economy. With supply disruptions, inflationary pressure are expected to increase and strong US dollar is not helping our cause. Emerging market currencies are witnessing sell off and we may see the phenomenon continuing till lockdown has not been lifted. With import export taking back stage and FIIs outflows from debt and equity market continuing, there is little respite for Indian rupee. The more lockdown gets extended; more economy will suffer ultimately weakening our currency. We expect the rupee to remain under pressure in the medium term.

Gold prices have retraced from all time high in MCX and 7.5 year high in COMEX but the underlying trend still is bullish. This is just normal correction in an uptrend and as long as $1620 is not breached on the downside, bias remains bullish. All factors point to strong gold prices be it low interest rate, low bond yields, fiscal policy or monetary policy, inflationary pressure expectation, investors sentiment and risk aversion. Physical demand has also restarted after Russian central bank has been asked to resume gold purchase to help their miners. With all the money being pumped into the financial system by the major central banks of the world, we might be looking at inflationary pressure which is positive for gold.

Silver is suffering from its dual-status. The industrial aspect of it is overshadowing the safe-haven aspect that if offers, just like gold. Silver is trying to catch up and historically we have seen silver giving more return than gold once it starts performing. Money managers trimmed their net-bullish positioning in gold futures modestly but hiked in the Silver.

Oil: OPEC officials decided to cut oil supply by 9.7 million bpd which will help in putting a floor in crude oil prices but it won’t be enough to trigger a rally in prices. Either US will have to start cutting their production or OPEC+ will have to cut by more than 20 million bpd for crude oil prices to stage any rally. We think WTI will flutter between $22 to $35/bbl with Brent likely between $28 to $38/bbl. Natural gas prices broke out last week with a gain of nearly 9% as colder than normal weather helped buoy prices but later settled lower near 6%. While demand remains steady, supply for the first time could come offline allowing prices to remain strong. Price action over the past three sessions has been bullish, but at these levels, the risk for some pullback is increasing. Next rally may come above $2 where fresh long can be done. So in MCX 148-150 is where strong resistance is and NG needs to break that level for staging another upside rally. Any long position should be exited below 139 and profits should be booked near 148-150 levels.

Recommendation:

Buy Gold near 44300 | TGT 45,500 | Stoploss 43,800

Gold is trading near all time high and some pullback is expected. After a strong rally, prices usually retrace till 78.6% retracement and that is where we are recommending long positions. Price action is also far from 20 and 50 day moving average on the daily scale indicating that chances of a pullback are increasing with every rise. So instead of chasing prices at a higher level, we recommend to buy on dips near 44,300 for an expected target of 45,500 and stoploss of 43,800.

Buy Lead Mini near 134 | TGT 140 | Stoploss 130

Since the start of March, Lead mini prices have for the first time touched its 20 and 50 day moving average. Prices have bounced from the oversold region and its immediate support comes at recent swing low of 130. Prices are on the cusp of buying crossover of 20 and 50 DMA on the daily scale so buy near 134 for expected up move till 140 and stoploss of 130 closing basis.

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Disclaimer:  Bhavik Patel is Sr. Technical Analyst (Commodities) at Tradebulls Securities. Author may or may not have positions in the above mentioned stocks