Trading strategies for natural gas and gold by Tradebulls Securities

Gold has erased almost all of December’s gain and is now slowly finding its feet with $1,780 as its base. US consumer prices are rising at quickening pace which will be beneficial to gold as inflation will rise. Gold prices have started recovering after Democrats released the first draft of key legislation that will comprise President Joe Biden’s Covid-19 relief bill. Market is anticipating that US stimulus package is now near to fruition. Ahead of the Chinese Lunar New year, physical demand for gold in China has picked up. We have started to see premium increasing from some refineries and bulk suppliers for gold and silver bars indicating supply tightness. All this factors will contribute in pushing gold prices further. The recent correction is good opportunity for investors to buy gold if they had missed the previous rally. We don’t anticipate any strong correction in gold going forward and expect prices to test again levels of Rs 51,000 in MCX in medium term.

Silver is witnessing physical squeeze and not short squeeze. It is difficult to get physical stock. Silver prices have pulled back from eight-year highs but strong demand in the physical market remains. The silver market has been largely under-owned and underinvested until 2020, when silver began its bull rally and outperformed gold. Now that industrial demand is picking up and when physical squeeze happens, speculators will soon join and the prices will jump just as it happened in Palladium. Once Silver breaks above $30 an ounce, new investors will come in and begin to chase that price higher.

Oil rose for the seventh day in New York, the longest streak in almost two years, on continued signs the global market is tightening and demand is improving. Crude market is in overbought zone where its RSI is in most overbought zone since 2012. Oil demand is expected to recover gradually in the foreseeable future, but oil supply is already playing a supportive role in the re-balancing of the market. China’s oil imports are estimated to have jumped by more than 32 percent in January compared to relatively weak December imports. Strong imports is helping to support global oil demand. Demand is expected to remain as there is always surge in demand for oil during Chinese Lunar New Year. We would recommend to go long after prices have corrected somewhat as risk/reward ratio does not favour long position as current juncture.

The Natural Gas market has fallen back after reaching towards its previous resistance of $2.80. Natural gas might witness again cyclical sell-off as winter season is nearing the end. Level below 199 will see NG market trapping buyers and falling till 193. Any long position should be exited below that level and we expect sellers waiting for any rally to start selling short.

Recommendation:
 

Sell Natural Gas | TGT: 193 | Stoploss: 217

Natural Gas has made ‘shooting star’ candlestick pattern at the top end of the swing range and, consequently, retraced back. It is taking support at its 20 EMA, and if it breaks that level, it will witness free fall till 197. RSI_14 had witnessed negative divergence when ‘shooting star’ candlestick formation was made, indicating that sellers are gaining upper hand. So we recommend short with expected target of 193 and stoploss of 217 on a closing basis.

Buy Gold | TGT: 48,500 | Stoploss: 47,000

Gold has recovered smartly after forming ‘Bullish Belt Hold’ candlestick format. The “V” shape recovery is followed by volume giving confirmation of temporary bottom in place. Prices are still below 20 and 50 EMA so general trend is down but we might see upside momentum continue till 48,500 so buy with stoploss of 47,000 on a closing basis.
Disclaimer: Bhavik Patel is Sr. Technical Analyst (Currencies/Commodities) at Tradebulls Securities. Views are personal.