Commodity outlook by Tradebulls Securities: Sell zinc, buy silver

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

Gold is, once again, trading above $1400 after mini correction from $1440 to $1382. That level is proving to be a strong resistance as gold lost its momentum twice between $1435 and $1438. We expect gold to trade positively going forward as the pool of negative-yielding government bonds around the world hit a fresh record high of $13 trillion. 

Gold peak of 2016 also coincided with a record amount of global negative yielding debt. At that time it was more than $12 trillion. French and Swedish 10-year yields fell below 0 percent for the first time ever. Gold bull’s next target would be to produce breakout and close above solid technical resistance at $1,450.00. The rally could derail if bears successfully push prices below solid technical support at $1,375.00. 

Continued central bank demand is also a major reason that could take gold price higher in future. Silver needs to break first above $15.50, and then $16.00 (the last intermediate cycle high) in order to establish a bullish trend on par with gold’s. Silver bulls are hardly excited, even though relative to gold, silver is trading cheap. Silver is more likely to perform better in the aftermath and recovery from the next recession, when interest rates are still low and central bank policy is still very accommodative.

Crude Oil

The main trigger for crude oil prices is demand. Supply side is steady as OPEC has extended its production cut till the first quarter of next year. So any changes in demand will reflect on crude oil prices. US-China resumption of trade talk has boosted some confidence but unless trade deal happens, expect crude oil to trade in a range. Yesterday, crude oil ignored large drawdown in inventory which again states that crude oil is ignoring supply side and focusing on demand side only.

Since China is a major consumer of base metals, a slowdown in the Chinese economy will be a bearish factor for the sector. The prices of all base metals were lower during Q2. Confirmed trade deal would ignite the prices higher but if there is disappointing results to trade negotiations, we could see a continuation of selling in this sector of the commodities market. The prices of the base metals reflect the disappointment over trade in Q2.

Commodity recommendation

Sell Zinc | TGT: Rs 192 | Stoploss: Rs 204

On the daily chart, Zinc is trading below its 200 day moving average highlighting the fact that trend is negative. It is trading under all short term and medium term moving average. RSI_14 is at 36 so there is further room on the downside. There is no divergence on oscillator and no reversal candlestick pattern on the daily chart which compels us to go with the trend. So we recommend short position with expected down move till Rs 192 and stoploss of Rs 204 closing basis.

Buy Silver | TGT: Rs 38,500 | Stoploss: Rs 37,300

Silver has underperformed gold and should catch up with other precious metals. In the near term, it has resistance near 200 day moving average but crossover of 20 and 50 day moving average gives confirmation of bullish trend. RSI_14 is at 59 so there is ample room on the upside and creation of ‘hammer’ candlestick pattern gives additional confirmation in going long with a target of Rs 38,500 and stoploss of Rs 37,300.

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