Trading strategies for gold and aluminium by Tradebulls Securities

Gold has recovered some ground during Diwali time but once again optimism about vaccine development has pushed the prices below $1890. The yellow metal remains at the mercy of the coronavirus developments and investors remain divided as on one hand there is a promise of vaccine results while on other hand, there is growing virus risk in the form of second wave. There are concerns of a new lockdown which will stall global recovery. But there is one thing that we won't see too much upside as vaccine optimism will mean there will not be an additional need for fiscal and monetary stimulus.

Barring gold and silver, other commodities saw a net increase in open interest position. Optimistic news about the coronavirus vaccine lifted market sentiment, raising hopes that the global economy could return to normal later next year. Gold futures net length declined by 3,173 contracts to 239 736 while silver futures net length added 487 contracts to 45 828. Another thing that is keeping gold prices under $1,900 is an outflow from exchange-traded funds (ETFs). Yesterday, we saw renewed ETF outflows of almost 10 tons. Outflows in the last three days of trading have totalled 30 tons. In MCX, Gold has support in the range of Rs 50,000 - Rs 49,500 while Rs 51,200 - Rs 51,500 is where it has resistance.

Vaccine news has put pressure on silver prices. Silver has attempted to cross $25 but failed due to optimism of vaccine and has settled below $25. Next support is at $23.90 and a breach below that would open levels till $23.30. Above $25, silver will see levels till $25.50. Major support for silver in MCX comes at Rs 60,600 while resistance is around Rs 65,000.

Oil prices were temporary under pressure after API reported a build-up in crude oil inventory. OPEC+ indicated that it could extend its current production cuts for an additional three months which has kept the prices under pressure. Libya’s surging oil production and looming lockdown in other countries is expected to keep prices in check. On the other hand, vaccine development is keeping bulls charged up and crude is one of the commodities severely affected due to the pandemic. Also, the extension of the OPEC+ production cut deal by three to six months will swing the oil market into a deficit next year. The day before the US Presidential election, crude oil put was in a bullish reversal on the daily chart. Open interest has also turned higher with the high oil price.

Weather, which is a very important factor for Natural Gas prices, remains a concern with November 2020 coming in as the third-hottest November since 2000. Natural gas futures are taking a beating as persistently-bearish weather model updates continue. 15 days prediction is showing a low probability of turning bullish. We are waiting for a positive weather model outlook for taking long positions. Right now we are waiting on the sidelines and waiting for the signal to turn bullish.

Recommendations:

Buy Gold | TARGET PRICE: Rs 51,200 | STOP LOSS: Rs 49,500

Gold has made ‘harami’ candlestick pattern after large fall last Monday due to news of positive vaccine development. This week, too, we found similar positive news on the vaccine front but gold failed to fall sharply indicating that many of the news have discounted. We don’t expect a runaway rally in gold as ETF outflows will put pressure on the price but every time gold has come near $1,860, it has bounced back. The recent correction is an opportunity to go long with a stop loss of Rs 49,500 with an expected target of Rs 51,200

Buy Aluminum | TARGET PRICE: Rs 164 | STOP LOSS: Rs 156

Aluminum has been in a positive trend since it has breached 150 levels. Currently, it is in the overbought region as RSI is quoting at 80, and price action is also far from its 20 and 50 EMA. So, we would recommend going long around Rs 159 - Rs158 as current prices does not justify risk/reward ratio. The trend is expected to stay bullish till Rs 150 is breached on the downside. So, buy around Rs 158 - Rs 159 for expected target of Rs 164 and stop loss of Rs 156 on a closing basis.

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Disclaimer: Bhavik Patel is Sr. Technical Analyst (Commodities) at Tradebulls Securities. Views are personal.