Investors should be cautious on gold after recent rally: Tradebulls Sec

The US non-farm payroll data later in the day could either make gold break the $1,800 level and start fresh momentum on the upside or make the intermediate top

Gold is the one of the only major asset class to have a positive year-to-date return of around 25 per cent. This quarter has been one of the best quarters for gold after 2009. Gold market continues to go from strength to strength but at around $1,800, it is facing stiff resistance. Today’s non-farm payroll data could either make gold break the $1,800 level and start fresh momentum on the upside or make the intermediate top. The underlying fundamentals are bullish as there are chances of the second wave in China and cases are increasing worldwide. We might see gold prices retrace after a sharp rally in a couple of trading sessions. So, we would advise investors to be cautious at the current juncture.

Silver is around 4 week-high and on the verge of a breakout from sideways trending. In COMEX, it was stuck in the range of $18.20 to $17.30 and now is near the upper end of the range, waiting for a breakout. In MCX, since June 12, it was stuck in the range of 50,450-48,000, and now it is near its upper end of the range. The key for silver is a close above $18.20 September futures and once that happens, we can see silver rally till $19.

Crude Oil jumped after US API reported another crude draw this year. Crude oil is bouncing between 50 DMA and 200 DMA and is in a tug of war between accelerating Covid-19 cases and demand recovery. There is also the possibility of Libyan oil coming into the market which was halted due to civil unrest since January. We believe the bulk of the recovery has been played out and now we might see a modest recovery in Q3 and strong recovery towards the end of 2021 when aviation travelling will be in full swing. Market might consolidate around current levels as there are still high levels of inventory and many of the economies are facing a second round of infections.

The rally in Natural Gas has played out as we had predicted last week. We did suggest that prices are at attractive levels and one can go long around 120 with a target of 135. Now that prices have jumped, we expect consolidation going forward. The expectation of hotter weather has played out and prices have jumped 10 per cent. If the economy improves, then from September, we might see LNG exports increase from the US and now two factors are essential for natural gas to go further: hotter weather and lower production.

Recommendations

Sell Copper | TGT: Rs 458 | Stoploss: Rs 471

Copper has made a shooting star candlestick format at the top and there is bearish divergence on the daily scale. Both these fators point out that copper is vulnerable to some pullback. Copper has seen sharp recovery after breaching 455 and we believe for any further upside, prices need to come back near its mean of 457. Prices are also far from its short-term moving average of 20 and 50 EMA, so we are recommending short with a target of 458 and stoploss of 471 on a closing basis.

Sell Aluminum | TGT: Rs 134 | Stoploss: Rs 140

Aluminum has made ‘Bearish Engulfing’ candlestick pattern on the daily scale and, similar to copper, it has also made negative divergence from RSI. The recent swing high of 139.20 will prove to be a stiff resistance for Aluminum. We expect prices to test levels of 134 and that is why we recommend going short with a target of 134 and stoploss of 140 on a closing basis.
Disclaimer: Bhavik Patel is Sr. Technical Analyst (Commodities) at Tradebulls Securities. Views are personal.