Brent may test $78 levels: Bhavik Patel of Tradebulls Securities

Gold saw another sell off last Friday as the US dollar and the US Treasury yields climbed higher. Flows into gold have slowed after the precious metal failed to breach the $1,900 an ounce level despite higher-than-expected inflation numbers and a disappointing employment report out of the US. Right now, the gold market is at a rest stop. Last week, both retail investors and Wall Street analysts were bullish on gold however, sentiment among analysts has been losing some conviction as prices closed last week below $1,900 an ounce.

Hedge funds are starting to take some profit off the table as gold is struggling to sustain above $1,900 level. This is the first time in six weeks that gold saw its net length drop. Gold has support at 48,100 and below 48,000, we may see more selling pressure. 49,400 still continues to remain its short-term resistance.

Silver, meanwhile, is trading in the range of 70,000-73,000 in the MCX with no clear direction. Silver bulls are waiting for a sustained move beyond the $28.30 region before positioning for any further gains. On the flip side, the weekly trading range resistance breakpoint, around the $28.00-$27.90 region now seems to protect the immediate downside. Silver’s net length increased 4 per cent from the previous week and first increase in four weeks. Any breakout or breakdown is only expected if prices move above or below the given said range.

Crude oil climbed to highest in 3 years as businesses reopen and demand for air and auto travel bounces back. With most additional supply being gobbled up very quickly, gas prices will likely stay at elevated levels for the foreseeable future. Money managers started switching exposure from metals and agriculture to oil, due to expected strong rebound in oil demand. As a result, speculators have increased their combined WTI and Brent long to a five-week high with inflows skewed towards WTI where the net long reached a near three-year high. We expect Brent to test levels of $78 and in MCX, prices may even come till 5,500. This is not a market for taking short positions and periodic profit booking should be done when market makes new high.

After 5 days of gain, Natural gas prices have witnessed profit booking. The prices were trending higher due to heat wave going in the US. Texas state even asked residents to reduce electric use immediately to prevent surging demand from resulting in blackouts. While we are seeing pullback after recent strong move, but we don’t expect the pullback to be steep. Improving economic conditions alongside successful coronavirus vaccination campaigns is fueling stronger commercial and industrial activity across the United State and its key export end markets in Asia and Europe, propelling steady power generation and rising industrial demand. Any levels around 228 is good opportunity to go long with stoploss of 223.

Recommendations

Sell Copper near 730 | TGT: 700 | Stoploss: 750

We had recommended short in copper below 730 and our target was achieved this week. We are again recommending short near 730 where breakdown was. Since prices have collapsed in short duration, it is ideal for pullback before initiating short positions. RSI_14 is near 35, so there is room for downside. Prices are under 20 and 50 DMA so we are recommending short June contract near 730 for expected move till 700.

Sell Aluminum at 194 | TGT: 188 | Stoploss 198

Aluminum has resistance at 198 as twice in the month of June, prices have corrected after touching that level indicating presence of strong sellers. Momentum oscillator RSI_14 is below 50 and MACD has started curving downward. There is sell crossover in fast stochastic oscillator and so we are recommending short position of June contract near 194 with expected target of 188 and stoploss of 198 on a closing basis.
Disclaimer: Bhavik Patel is Senior Commodity/Currency Research Analyst at TradeBulls Securities.Views are personal.