Expanding risk appetite to dim safe-haven buying in bullion

The markets witnessed a lower turnover last week due to a national holiday on October 2. The pro-rata turnover was in line with the previous week’s figures. The week-on-week market-wide turnover on the MCX fell by 18%. The market-wide open interest fell by 1%. The noticeable MCX turnover gainer during the week was crude oil. The open interest gainers were cardamom, cotton, crude oil, potato and silver. The US non-strategic petroleum reserves were lower by 0.5 million barrels at  364.7 million barrels. The strong rupee kept hard asset prices under check, along expected lines, as the buy-rupee-sell-dollar trade extended itself. Bullion witnessed unwinding at higher levels as appetite for riskier assets expanded. That trend is likely to sustain, barring some fresh negative development on the economic and geopolitical fronts.

Agri commodities
Mentha oil has witnessed unwinding as the bulls lacked the conviction to push prices higher. The continuous futures chart recorded a gain the previous week due to expiry and cost of carry considerations. The same has now been factored into the price. Avoid bargain-buying for now, till the price exhibits signs of bull accumulation again. The decline has come on poor volumes; and given that open interest is also lower, this is an indication of an absence of panic sales in the markets. Market internals indicate a 24% decrease in turnover and a 14% decrease in open interest.

Potato fell for the third consecutive week as the bulls remained on the back foot in the face of higher release of physical stocks from cold storage facilities. Should the bulls abstain from lending support this week and in the coming weeks, Rs750 may be seen in the medium term. Market internals indicate a 53% decrease in turnover and a 3% increase in open interest.

Metals
Aluminium has declined for the third week in a row and tested the upper trendline of a bearish triangle after breaking out of it five weeks ago. So, Rs107 will need watching as any sustained trade below this threshold will indicate weakness in the coming weeks. Fresh buying is suggested only above Rs111. Market internals indicate a 30% decrease in turnover and a 44% decrease in open interest.

Copper has declined for the third week in a row and has violated a trendline support in the process. The trend will change for the better only after the price rallies past Rs445 forcefully. Till then, await signs of support. Market internals indicate a 24% decrease in turnover and a 3% decrease in open interest.

Gold has declined for the fourth week in a row and the rising rupee added to the downward pressure. As risk appetite for paper assets expanded, the safe-haven buying in the domestic context has eased. On the weekly candle charts, the previous week has logged a hammer pattern after a month of declines, indicating a marginal oversold reading. Should follow-up buying emerge this week and the price manage to stay above Rs31,350, expect a short-term corrective bounce. On the flip side, any declines below Rs31,000 may see continued unwinding of longs.

Market internals indicate a 25% decrease in turnover and a 9% decrease in open interest.

Silver has declined for the third week in a row and the weekly candle charts indicate a bearish inverted hammer which indicates an abortive attempt by the bulls to pull prices higher. That the attempted rally was accompanied by poor volumes suggests the bulls will need to regroup to make another attempt in the near term. Should the rupee decline against the US dollar, silver would rally more than gold in the near term. Market internals indicate a 21% decrease in turnover and a 4% increase in open interest.

Zinc has declined to the upper trendline of a symmetrical triangle after a bullish breakout and Rs105 will need watching as a near-term support. As long as this level holds, expect the bulls to retain their positions. Fresh buying may be contemplated only above Rs108 as and when a breakout occurs on higher volumes and open interest expansion. Market internals indicate a 21% decrease in turnover and a 13% decrease in open interest.

Energy
Crude oil has extended its decline for a month and the rising inventory in the US has added to the downward pressure on prices. So, Rs4,600 may see feeble signs of support as a technical pullback rally may be seen, on the back of short-covering. However, a more meaningful support is around Rs4,450. Any bounce from Rs4,600 may be used by higher risk appetite players to initiate longs in minimal quantities only, as the overhead supply overhang remains in place. Market internals indicate a 4% increase in turnover and a 24% increase in open interest.

Natural gas has rallied in divergence with crude oil but has encountered profit-taking at higher levels due to the rising rupee and weekend considerations. The weekly candle charts indicate a “shooting star” formation and calls for caution among the bulls in the immediate near term. Market internals indicate a 17% decrease in turnover and a 3% decrease in open interest.

The columnist is the author of A Trader’s Guide to Indian Commodity Markets and invites feedback at vijay@BSPLindia.com
Fair disclosure: The analyst has no exposure to any of the commodities recommended above