Gold is in overbought zone, trade cautiously: Bhavik Patel of Tradebulls

Gold has dropped below $1900. Now, although dollar weakness contributed fractional tailwinds, it was not enough for gold to close positive on Tuesday. Despite a minor pullback, gold bulls are near technical advantage. A two-month-old price uptrend is in place on the daily bar chart and next resistance for gold comes around $1959, a level last seen in December 2020. Meanwhile, immediate support for gold in COMEX is at $1885.

Gold’s next move is expected on Friday when the US Labor Department releases its non-farm payrolls report for May. A disappointing non-farm payroll could push gold prices further upside while better than expected number could see US dollar and yields pivot higher. Hedge funds and investors have covered their short positions and have added long as speculative interest in gold has risen for four consecutive weeks.

Some caution is needed as momentum oscillator RSI_14 is now in overbought zone around 75. Anything above 70 level is considered overbought, so long positions should be held with strict stoploss. In MCX, prices are still above its 200-day moving average and we recommend taking some profit off the table as gold in COMEX is trading in overbought zone while in MCX, Gold prices, due to strong rupee (it underperformed compared to COMEX), has just entered overbought zone. There would be opportunity to go long around 48,800 with stoploss of 48,200. Wait for some decline before taking fresh long positions but underlying trend still remains positive.

Silver has been locked in the range of 70,900-73,500 for past 14 trading session. Gold is outperforming silver and a strong rally in silver is expected above 73,500. 70,000-68,000 is a strong support zone for silver and any selling pressure will come below that level. We are more neutral in silver while bullish on gold. Silver will play catch up if Gold manages to break $1920 on the upside

Crude oil has hit nearly 2-year high around $70 on upbeat demand outlook and falling stock piles. OPEC+ gave a green light to further increase production by 850K bpd in July, as agreed at a meeting in early April. The oil cartel painted a rosy demand outlook for the second half of this year, forecasting that global inventories could fall by 2 million bpd during the September to November period which led to prices rising to $70. Nuclear talks between the US and Iran have paused, so the only thing that was keeping prices under pressure is now no longer there. US ISM manufacturing data came positive suggesting strong recovery in the economy. US Total inventories have fallen to a three-month low of 484.35 million barrels, and this trend looks set to continue with the arrival of the summer driving season.

There is holiday weekend in US this week and there is a hotter forecast in June which means natural gas will have high demand for cooling. Prices are already showing signs of strength and with this much demand in the forecast, thanks to the hot pattern, it is difficult to argue for a notable move lower in prices. We are bullish in Natural Gas till 218 prices are not breached on the downside.

Recommendation:

Buy Nickel above 1350 | TGT: 1,420 | Stoploss: 1,300

Nickel has double top around 1,348 and needs to break that level for fresh upside. Trend is positive but the hurdle around 1,348 has created major resistance in the month of May and on the first day of June. So clearly, sellers need to clear out before buyers can push prices up. RSI_14 is at 60 so there is room on the upside. Support comes around 1300 where 20 DMA is. We recommend long position above 1350 for expected target of 1420 and stoploss of 1300.

Buy Aluminum | TGT: 203 | Stoploss: 190

Aluminum has shown V-shaped recovery and prices have climbed above 20 and 50 day moving average. Trend is positive and RSI_14 is around 56. There is no divergence on daily scale and we expect prices to test levels of 203. So we recommend long position with stoploss of 190 closing basis.

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