Trading strategies for gold and nickel by Tradebulls Securities

Gold market is rebounding as it had been in oversold territory in the month of November. Vaccines are shifting expectations that the global economy will see a faster-than-expected recovery from the devastating pandemic. Gold saw its worst month since November 2016 and equity markets recorded their best monthly gains since 1987. Vaccine development and outflows from ETF is main contributor for gold’s loss in November as 100 tonnes of gold flowed out of ETFs last month, the first month of outflows in a year and the most significant drop in four years. Talks of a new round of fiscal stimulus is adding fuel to the risk-on sentiment while driving money to precious metals at the same time. A watered down stimulus package was proposed and fact that it was put shows that we might see package coming once Joe Biden assumes the office. We have seen first sign of reversal in gold as it made ‘Bullish Engulfing’ Pattern on daily basis.

March silver futures bulls and bears are back on a level overall near-term technical playing field. Silver has been outperforming gold recently due to vaccine news as silver is also industrial metal. Yesterday’s rally paused at 21 and 50 day moving average stuck at $24. If we look at sentiment indicator there is less than one bull for every four bear in the market. Obviously, there is no rule that sentiment cannot go worse but looking at historic data, such pessimism usually leads to rally in prices.

Crude oil prices saw some pullback after OPEC+failed to reach an agreement regarding production cuts in 2021, with the three most influential members all disagreeing on how to proceed. OPEC+ postponed a decision on its next steps until Thursday. Saudi Arabia is expected to increase its prices for Asian buyers and even though we feel crude may face headwinds around $50, we don’t see too much downside. For OPEC+, the physical oil market has already priced in an extension, so any disappointment will likely cause timespreads to sell-off. There's more to lose than to gain by not agreeing to an extension.

Weather models are now showing a cold blast potential in the 15-day trend, something all natural gas traders watch closely. If the weather turns out to be cold then prices might recover. We believe potential upside far weighs more than potential downside.

Recommendations
 

Buy Gold; TGT: 49,100; Stoploss: 47,800

Gold made ‘Hammer’ candlestick in the month of November after slipping 5.4 per cent and has now bounced back. The hammer shows that reversal is in place as the follow-up candle was bullish. Gold had taken support around its 200 DMA. RSI has also bounced back from 30 to 38 and so we recommend going long with expected target of 49,100 and stoploss of 47,800

Buy Nickel; TGT: 1,230; Stoploss: 1,190

Nickel had made ‘Harami’ candlestick pattern after strong bearish candle indicating that selling pressure has subsided. RSI is still above 50 and price action is comfortably above 20 and 50 DMA. Prices have been taking support around 20 DMA and so we would only be bearish once it breaches below 20 DMA which comes around 1,190. So we recommend taking long position with expected target of 1,230 and stoploss of 1,190 on a closing basis.
Disclaimer: Bhavik Patel is Sr. Technical Analyst (Commodities) at Tradebulls Securities. Views are personal.