Here's why Bhavik Patel of Tradebulls thinks Brent crude may hit $80 soon

The two primary forces which had propelled gold prices above the psychological number of $1800 are still dominantly in play. These are dollar weakness and an uptick in inflation which are greatly affecting treasury yields and in turn the sentiment in gold. Although there is recovery from recession caused by the pandemic at different stages worldwide, rising inflation is adding a new twist to our economic recovery. The dollar index has been in a defined downtrend since the end of March which correlates directly to the second bottom of gold pricing which occurred at the same time (around $1685 on 26th March).

There is technical support for gold in COMEX around $1,849, which is also its 200-day moving average (200-DMA). Hedge funds are returning back to gold with renewed speculative interest as cryptocurrencies have seen a significant rise in volatility. Money managers have increased speculative long positions and gold has not managed to put together a three week buying spree of this magnitude since last June which highlights the continued improvement in the technical outlook. On MCX, gold has resistance around Rs 48,800 also its 200-DMA. Momentum oscillator (RSI_14) is bullish but is not in the overbought zone, indicating room for further upside. This week support for gold is at 47,800.

Meanwhile, trend for Silver is also positive as it is making higher high and higher low on daily scale on MCX. Momentum oscillator RSI_14, too, isn't in the overbought state, indicating further room for upside. Prices are taking support at 20-DMA and a decisive close below 70,500 can see bullish trend under threat.

Crude oil demand is expected to increase with more economies opening up. WTI is trading around $65 and we expect $70 to touch soon. With demand rapidly increasing in the US and Europe amid accelerated vaccinations, lifting of lockdowns, and surge in freight and industrial activity, it is a matter of time before we see Crude testing $80. Crude oil prices are above their daily 5, 8, 13, and 21 day moving average envelope, which is in bullish sequential order. Momentum is slowly shifting to a more bullish stance. US Crude Retail trader data shows 42.54% of traders are net-long with the ratio of traders short to long at 1.35 to 1. So there is more net short and since we believe in contrarian view, we expect prices to trend higher.

Recommendation:

Buy Natural Gas | TGT: 224 | Stoploss: 208

Natural Gas has made bottom around 212 (June contract) with ‘Hammer’ candlestick format on the back of a strong upmove. Momentum oscillator RSI_14 has bounced form 40 level to 50 and is now in the neutral zone. Although prices are under 20-DMA, we believe the recently gained momentum may take prices above 20-DMA till 224. So buy is recommended with stoploss of 208 closing basis and target of 224.

Sell Lead | TGT: 168 | Stoploss: 176

Lead has made a ‘Bearish Belt Hold’ candlestick formation and the pattern will be invalidated above 176. Prices are between 20 and 50 DMA and RSI_14 is just shy below 50. Until now, 20 DMA was acting support but has now become resistance for Lead. We recommend short at current position with expected target of 168 and stoploss of 176 closing basis.

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Disclaimer:  Bhavik Patel is Senior Commodity/Currency Research Analyst at TradeBulls Securities.Views are personal.