Trading strategies for Gold and Natural Gas by Tradebulls Securities

Gold prices rallied significantly in the last two days and is now seeing a little bit of pullback. After $1785, we could soon see $1800. Besides, levels of $1745-$1740 would offer good support. Gold prices have got a boost after an increase in world-wide cases for Covid-19. Also, reports that phase-one deal between the US and China are under threat prompted investors to go for safety in gold. US Dollar also has been significantly beaten down due to the rise in other emerging market currencies on account of a stock rally and so any reversal in US Dollar could cap gold prices on the upside. Factors which still favour gold are trade tension, second wave infection concerns, and 10 year real yields declining deeper into negative territory. Trade conflict between US and EU will also support bullish calls for gold.

Hovering at under $18 an ounce, silver is not far off early June's nine-month highs and currency debasement could attract more people to alternative assets like silver and gold. Silver price has also gained strength because of the improving business environment. Global PMI readings early this week pointed at a quicker economic recovery from the coronavirus pandemic. Gold continues to outperform silver as we are seeing more of a “risk off” trade, but I do think that silver does play a little bit of catch-up. Right now looking at risk off mode, I would be more interested in chasing gold than silver.

Crude oil saw some pullback after API showed another build-up in crude oil inventories. Donald Trump stating that US-China deal is still on smoothened some of the nerves and crude oil recovered post that comment. Crude oil is due for some pullback and we are seeing that right now. Trade conflicts between US and EU/Britain will make investors book some profits in crude oil. The overall trend is still positive and going forward, we are not very bearish as US oil rigs continue to drop. It is currently at lowest since June 2009 and global oil inventories which peaked in May and have already started to fall in June. Backwardation in Brent has started early than expected indicating market is rebalancing excess crude oil inventories.

Natural gas production didn't drop as much as we had thought at the beginning of the oil production shut-in. The difference combined with LNG exports moving lower has pressured prices. We need to see hotter weather for prices to move higher in the near term. 15 days weather forecast in US is giving hints of normal than warm temperature but that still has to manifest. 120-118 is a good level for taking a long position with stoploss of 112 and target of 130. Previously too we have seen natural gas bottoming around those levels.

Recommendations:

Buy Gold at 47,200 | TGT: 48,100 | Stoploss: 46,500

Despite a strong rally in Gold, on a daily scale, it is not in an overbought zone as RSI_14 is around 60. There is no divergence in Gold and prices are comfortably trading above its all-important moving average. We expect prices to pull back near 47,200 which is where 20 day moving average is. Since May, gold prices are taking support at 20 day moving average and bouncing from there so this time we expect pullback till 47200 before initiating a long position with target of 48100 and stoploss of 46500 closing basis.

Buy Natural Gas at 122 |TGT: 130 | Stoploss: 116

Natural Gas is near to its oversold zone as RSI is at 32. Fundamentals are weak but there are chances of bounce back as short term weather forecast are expected to turn in favour of bulls. Since Mar, 122-120 is the area where Natural Gas has taken support and bounced back so we are recommending long positions around that level with strict stoploss of 116 and expected target of 130.

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