Commodity outlook by Tradebulls Securities: Buy Copper, Natural Gas

Commodity outlook and trading ideas by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls.

Gold prices have recovered from $1,319 to $1,330 after weak US PMI and CPI data as investors are turning to risk off mode. US-China trade talks continue to make headlines. Last week’s weak US employment data have helped gold in staging good rally and market is expecting a rate cut from US in August or September. Gold is expected to remain in a higher trading range. Previously, the trading range was $1,270-$1,288. Now, we feel the range has shifted to $1,310-$1,345.

Even though gold/silver ratio is at a record high, we continue to remain bearish in silver as primarily it is used as an industrial metal and global environment is such that there is hardly any scenario where we can see demand for silver increasing. This has steeped into its price too. We expect gold to face stiff resistance around Rs 33,000 in MCX and support around Rs 32,200.

US Crude oil inventory is the primary reason for any movement in crude oil prices. Market has already factored in that OPEC+ will keep supply tight and will extend production cuts to end of this year. Slow demand is eating the prices and we have seen crude crashing more than 10 per cent since the last two weeks.

According to Energy Information Administration (EIA), they have lowered its forecast growth for demand of crude oil at 160,000 barrels per day (bpd) to 1.22 million bpd and wound back its forecast for 2019 US crude production to 12.32 million bpd, 140,000 bpd less than the May forecast. Yesterday, we saw crude oil prices trading lower after API reported surprise build up of crude oil inventories. We expect Brent to make base around $58 and any positive trend would only come above $64. In MCX, expect the price to stabilise around Rs 3,500 - Rs 3,450.

Base metals remained under pressure since the start of June, as US-China trade tensions weigh on sentiment. Some respite in base metals came when Mexico avoided tariffs. As positioning across the base metal is too negative, we believe that industrial metals are ripe for a solid rebound in the course of June. This can be seen by the fact that open interest across most LME base metals has increased since the start of June indicating a broad based decline in the complex has been more driven by fresh shorting. Copper Speculators' bets fell for the seventh straight week to the lowest level since January (most bearish since 15 January).

Buy Copper

TARGET: Rs 418 

STOP LOSS: Rs 398

Copper has support around Rs 400 levels. It has made a triple bottom chart pattern. Since August 13, 2018, it has thrice taken support around Rs 400 and bounced till Rs 468. Again, copper is at a similar support zone and we are expecting a bounce from current levels. Rs 468 level might be too stretch of a target but one can initiate long position looking at past history where Rs 400 seems to emerge as solid support and expect upmove till Rs 418 and to keep a stop loss of Rs 398 on closing basis. Oscillator RSI_14 also confirms the bottoming out as it has recovered from an oversold zone of Rs 27 and is currently placed at Rs 37.

Buy Natural Gas

TARGET: Rs 178 

STOP LOSS: Rs 157

Generally, natural gas makes a natural bottom in summer and rallies during winter. We are still searching for the natural bottom but for short-term, bottom looks to be in place. Oscillator RSI_14 has bounced from oversold region of 30 and is trading at 37. Natural gas is trading below short term moving average of 20 and 50 so clearly, primary trend still is negative but risk reward looks favourable in buy side rather than sell side looking at steep correction in prices. We believe natural gas will see some technical bounce from current levels and recommend long positions with expected up move till Rs 178 and to keep a stop loss of Rs 157 on closing basis.

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Disclaimer: The analyst may have positions in any or all the commodities mentioned above.