Commodity outlook by Tradebulls Securities: Buy zinc, sell silver

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

Gold speculators has increased their bullish bets to highest since 2016. Starting from this week, the yellow metal was on the back foot due to recent supportive data of US jobs number which reduced the expectation of an aggressive rate cut from the US Fed. However, recent statement by the Fed chairman Jerome Powell boosted all precious metals and equity market. The text suggested June FOMC meeting uncertainties, world trade tension, low inflation and gloom outlook of US economy.

Market is reading his remarks as dovish on US monetary policy and interest rate of 25 basis points (bps) is expected on July 31, which prompted gold to trade higher and DXY fall. Indian rupee, too, appreciated because of the weak dollar and is trading around the support zone of 68.20-68.50. We feel rupee may stabilise around this level and there are many headwinds on the upside as good inflows along with the government’s decision to borrow from the overseas market will keep the rupee strong.

Crude oil, which since last 5 trading session was unable to break Rs 4000 in MCX, has breached that level convincingly. The back and forth price action was frustrating for traders and now we expect it to remain positive. The breakout came on the back of US inventories shrinking more than expected. Crude oil is trading at seven-week high and we expect some retracement before continuing its upward journey.

The advancement of a tropical storm in the Gulf of Mexico is giving tailwinds to the crude oil prices. We expect it to halt around $70 in Brent as demand concerns are still there. Both OPEC (Organization of the Petroleum Exporting Countries) and EIA (Energy Information Administration) have revised demand outlook lower for 2019 and 2020 on the back of global trade war. Any escalation between Iran and US may trigger prices on the upside. Iran has long threatened to close the Strait of Hormuz, through which almost a fifth of the world’s oil passes, if it was unable to export its oil due to US sanctions.

Buy Zinc 

TARGET: Rs 196 

STOP LOSS: Rs 190

Zinc has underperformed against all other base metals on account of the fear that we may see a surplus in inventory in the second half of the year. Zinc is a prime candidate for short covering as other base metals already are trudging higher on hopes of an interest rate cut from US. After forming a ‘Bearish belt hold’ candlestick pattern on the daily chart, Zinc failed to make follow down move which suggests bears exhausting their selling pressure. RSI_14 has also bounced from oversold region of 28 and is currently sitting at 34 indicating we may see more short covering going forward. The target is on the lower side as we are not expecting major upside but just short covering so buy with a target of Rs 196 and a stop loss of Rs 190.

Sell Silver 

TARGET: Rs 37,900 

STOP LOSS: Rs 39,000

Silver is facing stiff resistance near Rs 39,000 on the daily chart. It is clearly underperforming gold as the muted global economy does not augur well for industrial metal like silver. Historically, whenever silver prices have increased or decreased more than 1.5 per cent against 20-day moving average (DMA), we see mean reversion. Silver prices, in the same way, are expected to adjust to its mean reversion of 20-DMA; so, we recommend selling with target of Rs 37,900 and a stop loss of Rs 39,000 on closing basis. 

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