Outlook & trading strategies for Silver, Nickel by Tradebulls Securities

Rupee's ride from 71.80 to 73.20 was ferocious as in just three trading sessions, it lost more than 1.5 per cent

The Indian rupee which was relatively immune to risk aversion from the novel coronavirus (Covid-19) in the first two weeks of February saw a sudden sell-off as fresh cases were reported in India. The ride from 71.80 to 73.20 was ferocious as in just three trading sessions, the Indian rupee lost more than 1.5 per cent. The Reserve Bank of India intervened near 73.90 to defend 74 levels in Futures but we still expect the rupee to remain weak until the virus is contained in India and globally. We might see some pullback in Rupee till 73.20-73 levels as the RBI has been actively intervening in the Forex market.

Gold-silver has rebounded from a solid loss last week. In a surprise move, the US Fed cut interest rates by 50 basis points (bps) to boost the economy which is getting affected because of coronavirus. The yield on the benchmark US Treasury 10-year note has dropped to a record low below 1 per cent overnight after the rate cut. Gold after hitting the high of $1,650 is consolidating and digesting the gains. $1,630 is a critical support zone and if that is breached, we may again see some sell-off as we are not seeing any follow-up move after the jump from $1,602 to $1,651.

Silver is still languishing compared to gold as even though industrial demand for silver is rising because of applications in electronics, solar panels, and a host of other products. But what we should remember is that it is not industrial demand but investment demand that drives the price higher or lower. So far, investors and speculator traders are preferring gold than silver and that is why gold has broken from its long term resistance while silver has yet to challenge the $21.095 high from July 2016.

Oil prices have recovered as US Fed cut interest rate by 50 basis points and other central banks are also likely to enact financial stimulus to offset the slowdown from coronavirus outbreak. Another reason for the rally in crude oil prices was the optimism that OPEC+ would order deeper output cuts. Yesterday, the informal group agreed to cut oil output by an extra 1.5 million barrels per day (bpd) in the second quarter of 2020 to support prices, but made its action conditional on Russia and others joining in. Brent may only rally above $54 as news of deeper cut is already discounted by the market and last week sell off has failed to boost global refining margins. We think global refining margins will need to rebound first before there are any signs of a sustainable demand rebound.

Natural gas has failed to clear $2.00 per MMBtu so a test of 2016 low of $1.6 is on the horizon. Only four weeks are remaining until the injection season starts and inventories remain bearish. Any bounce is getting sold into as there is lack of bullish weather forecast. Without a bullish weather forecast, it's going to be hard for natural gas prices to stage a rally.

Buy Silver above 46,900 | TGT: 47,600 | Stoploss: 46,450

The recent sell-off in silver tested 200 day-moving average (DMA) on the daily chart and since then, prices have bounced back smartly. After ‘Bearish belt hold’ candlestick pattern, we saw ‘harami’ candlestick pattern, indicating that sellers have exhausted their resources. The recent swing of 46,890 seems to be near term resistance and silver needs to break above that level for fresh long and momentum on the upside. So, we recommend going long above 46,900 for the expected target of 47,600 and stoploss of 46,450 closing basis.

Buy Nickel | TGT: Rs 963 | Stoploss: Rs 928

Nickel has entered into the bullish zone after RSI_14 crossed 50 marks on the daily scale. Short-term moving average of 20 and 50 have given buy crossover and prices are making higher high after ‘bullish belt hold’ candlestick pattern. Nickel has a fair bit of resistance in the vicinity of 963-968 and support near 928-925. The current trend is mildly positive and we recommend long positions with an expected target of Rs 963 and stoploss of Rs 928.
Disclaimer: Bhavik Patel is a senior technical analyst (Commodities), Tradebulls Securities. He may/ may not have positions in the commodities mentioned above.