Outlook & trading strategies for Silver, crude oil by Tradebulls Securities

Gold futures have corrected as major global economies further eased coronavirus-led restrictions, fueling hopes of economic recovery and bolstering risk appetite. Despite the recent rally, gold’s net long position remains at 11-month low, which indicates that market participants are looking at another alternative than gold. Short-term, there is no key driver for gold which also raises the risk for a period of consolidation. Buyers looking for the long-term may welcome a healthy correction into a value area to give them an opportunity to re-enter the market at more favorable price levels. Gold is losing its appeal as a safe-haven asset and that fact can be ascertained as gold is weakening along with the US Dollar. Generally, both have an inverse relation. The main trend is up if we look at the daily swing chart and the main trend will only be under threat if gold goes below $1,683.30. 

Silver is following gold’s path, although it did outperform last week where we saw more selling pressure in gold compared to silver. The outperformance in Silver is because it could benefit from optimism about increased industrial demand as economies reopen following the COVID-19 pandemic. At the same time, the metal also draws investment demand from those worried about a second wave of the virus. Market participants are more bullish in silver than gold in the short-term as the net long position has increased to 21k lots, the highest since March 17. The only negative point from here is if a second wave of the virus should cause worse economic damage than current base-case scenarios, there could be a sharper retreat.

The Crude oil market has been extraordinarily resilient. The main reason for the rally is strict compliance by OPEC+ in cutting their production and bounce in demand due to the reopening of economies. Yesterday, Russia reported that its oil output had nearly dropped to its target of 8.5 million barrels per day for May and June under its deal with the Organization of the Petroleum Exporting Countries. Momentum is trending higher. A trade through $35.18 will change the main trend to up. Minor trend is up and trade below $30.70 will change the minor trend to down. 

Buyers returned to natural gas following the recent slump. The recent jump in prices attracted 24k lots of fresh longs resulting in the net long rising to 136k lots. Falling production due to less drilling by US Shale companies is helping NG’s prices. Natural gas was back in the buy zone with the price at the $1.70 per MMBTU level or at 138 in the June contract. The price action on the weekly chart displays a pattern of marginally higher lows since late March which is suggesting base is forming around 120 in MCX.

RECOMMENDATIONS

Buy Silver around 47,800 | TGT: 49,000 | Stoploss: 47,200

After the run up from 43,000 to 49,000, silver is consolidating in the range of 46,600-49,200. The given consolidation is necessary as the prior gains have to be digested and base needs to be created for further upmove. The price action is far from 20 and 50 moving average, so we expect silver to retrace in the buy zone of 48,000 where one can go long. RSI _14 is at 67 so in short term, silver is overbought so better to let it come into buy zone rather than chasing prices at a higher level. So, buy around 47,800 for the target of 49,000 and stoploss of 47,200.

Sell Crude Oil | TGT 2,150 | Stoploss 2,650

Crude oil has witnessed stellar rally where for seven weeks, we have seen positive gains. Narrow candlestick around 2,630 region indicates supply pressure building there and prices might attract its 20-day moving average around 2,200. Market has reversed from overbought zone and now Crude looks like it are losing momentum on the upside. We expect crude to come around 2,150. So, sell at current levels with stoploss of 2,650 on a closing basis.

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