Commodity outlook by Tradebulls Securities: Sell gold, buy zinc

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

Gold and Silver: Bulls speculators took a breather after 5 week strong run. The gross bullish position fell by -6597 contracts, while short position advanced by 7586 contracts indicating that bulls are clearly booking profit. Silver has outperformed gold this week and continues to do so. Finally, silver has breached $15.50 on the upside and next target comes at $16.

Yesterday’s better than expected core retail sales of US prompted selling in gold and US Dollar index also tested 97 levels. Weak Euro and Pound are pushing US dollar stronger which is creating headwinds for gold. We believe going next week, silver should be on investor’s radar as sentiment is changing in silver.  The reason for holding long gold hasn’t gone away but we could see some nervous long in the market as prices are struggling to make a new high. If we are selling, it’s not because we are creating a short position but only reducing our exposure.

Crude oi: The prices saw intraday fall of 3 percent on July 18 after US-Iran tension subsided. We don’t expect a large correction in crude oil prices as US inventory is expected to show dropdown after the Gulf of Mexico had to be shut following a hurricane. The news of US-Iran has been discounted and the next trend would be on the base of US inventory. US oil and gas rig count fell by 5 this week and continues to lose rig since past 3 weeks. The combined oil and gas rig count is now 958 for the week, with oil seeing a 79-rig decrease year on year and gas rigs down 17 since this time last year. OPEC crude oil production is down by 68,000 barrels per day in June. Going forward we expect crude oil to oscillate between $63-$67 for next week.

Base metals: They showed mix pictures with lead dragging its feet and Nickel flying high. The ban on Indonesia is lifting the prices up and it is coming near the overbought zone. Zinc and Copper are trading sideways while huge LME inventory in Aluminum is keeping prices under pressure. China’s slow GDP is also not helping base metal prices and we expect base metals to see any momentum on the upside if US Fed cuts interest rate.

Recommendation:

Sell Gold | TGT 34280 | Stoploss 35100

Gold has just come out of its overbought region with RSI_14 trading at 65. Candlestick pattern ‘Doji” accompanied with bearish candle indicates that buying pressure has subsided and we may see some gravity fall in gold prices. Price action should come near its short term moving average of 13 and 20 DEMA which comes around 34320. Negative divergence was already seen in RSI_14 when it was trading in overbought zone and now price action has confirmed it. So we recommend sell with target of 34280 and stoploss of 35100 closing basis.

Buy Zinc | TGT 197 | Stoploss 190

Zinc has bounced from oversold region with RSI_14 trading at 40 on the daily scale. Short term moving average of 13 and 20 has narrowed and started curving upwards indicating prices are rebounding. After making ‘bearish belt hold’ candlestick pattern, we saw reversal as next candlestick was ‘bullish belt hold’ indicating short term trend reversal. We expect this short term reversal to continue till 197 and recommend a long position with stoploss of 190.

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