Safe-haven spur back in gold, hold longs for now

The markets saw a higher-turnover week as traders displayed higher risk appetite in energy and stepped up safe-haven buying in bullion. The week-on-week market-wide turnover on the MCX rose 47%. The market-wide open interest fell 8%. The MCX turnover gainers during the week were aluminium, cardamom, copper, cotton, crude palm oil, crude oil, gold, lead, natural gas, nickel, silver and zinc. The open interest gainers were cardamom, copper, gold, lead, natural gas, potato and silver. US non-strategic petroleum reserves were lower by 5.4 million barrels, at 360.7 million barrels. Bullion is likely to remain buoyant as the markets await triggers in the news-laden week ahead.

Agri commodities
Mentha oil has rallied marginally on-week but gains have been superfluous. The Rs1,425 level remains a hurdle the bulls must overcome forcefully and convincingly before a buy can be initiated. Till then, avoid longs. Market internals indicate a 3% decrease in turnover and a 1% decrease in open interest.

Potato has declined for the fourth week in a row and recorded a gravestone doji. Should bulls provide active buying support, a pullback rally is possible. The ongoing decline has closed the open gap and Rs1,125 remains a crucial support. Market internals indicate a 45% fall in turnover and a 212% rise in open interest.

Metals
Aluminium has roared higher with higher volumes as the Rs102 threshold held. It is critical that this support holds for a few weeks if bulls are to take prices higher. Any easing in the US is likely to be a bullish trigger for industrial metals. Market internals indicate a 56% rise in turnover and a 43% fall in open interest.

Copper has rallied for the third week in a row and volumes have been supportive of the upthrust. The counter has a meaningful resistance at Rs445 and selling pressure from short-term bears could rise as it comes closer to that threshold. Any quantitative easing will boost prices significantly and trigger a buy — await a breakout. Market internals indicate a 46% increase in turnover and a 31% increase in open interest.

Gold has surged to life highs on the MCX and the higher volumes and open interest suggest bulls have been active on this counter. The Rs30,400 level will now act as a defacto support that must hold if the upthrust is to sustain. Hold longs for now. Market internals indicate a 33% rise in turnover and a 16% rise in open interest.

Nickel rallied with sizeable strength last week as the bulls bought at successively higher levels, thereby forcing the bears to cover their shorts. The selling/ profit-taking pressure will mount as the price approaches the Rs920-925 band and therefore, fresh longs at the current levels are not indicated. Market internals indicate a 47% increase in turnover and a 49% decrease in open interest.

Silver has indicated a bullish breakout from a symmetrical triangle that has been 15 months in the making. The volumes and open interest have expanded significantly, making the upthrust that much more credible. Long-term delivery buyers should enhance exposure on this metal and futures traders may await mild dips to go long. Market internals indicate a 160% rise in turnover and a 2% rise in open interest.

Zinc has rallied with high volumes and displayed a bullish engulfing pattern that has also been an outside pattern on the weekly bar charts. Follow-up buying support will be a critical factor in determining whether the upthrust is sustainable. Declines should not violate the Rs100 threshold if the upthrust is to stand a chance of sustaining. Market internals indicate a 49% increase in turnover and a 53% decrease in open interest.

Energy
Crude oil has seen some consolidation as the expiry of the August series and the strength in the rupee muted some gains made in the overseas markets. The weekly chart shows a bearish spinning top candle and that implies indecision in the absolute near term. For the bulls to take charge again, the price should overcome the Rs5,425 recent swings buoyant on higher volumes and open interest expansion. Failure to breakout may see the bears attempting to push prices lower. Market internals indicate a 2% increase in turnover and a 29% decrease in open interest.

Natural gas has logged an inverted hammer pattern for the second week in a row even as the volumes expanded sharply. The decline is now 5 weeks old (5 is a Fibonacci number) and dips may provide a buy opportunity for the high risk traders at the Rs145 level which is a near term support area. Initiate longs in small lots only. Market internals indicate a 38% increase in turnover and a 12% increase 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 discussed above.