Gold to remain in focus as safe-haven buying continues

Last week the markets witnessed a higher turnover as the traders displayed higher risk appetite. The fewer trading hours in the prior week also played a part in showing the turnover up. The week-on-week market wide turnover on the MCX rose 49%. The market wide open interest rose 13%. The MCX turnover gainers during the week were aluminium, cardamom, copper, crude oil, crude palm oil, gold, lead, mentha oil, nickel, potato, silver, sugar and zinc. The open interest gainers were aluminium, cardamom, copper, crude oil, crude palm oil, gold, lead, mentha oil, nickel and silver. The US non-strategic petroleum reserves were lower by 4 million barrels, at the 353.1 million barrel mark. The activity is likely to be focused on bullion as safe haven buying continues.

Agri commodities
Mentha oil has logged the second consecutive week of gains as the bulls prevailed over the bears. The volumes recorded a rise due to the lower base effect due to holidays last week. Hold existing longs for now. Market internals indicate a 146% increase in turnover and a 32% increase in open interest.

Potato has seen a sharp decline after a bullish fortnight as profit taking was substantial and accompanied by high volumes. Unless the weekly high at Rs519 is overcome forcefully, fresh buying is ruled out for now. Market internals indicate a 212% increase in turnover and a 17% decrease in open interest.

Refined soya oil has remained in a range as the support at the Rs650 levels as held. The trader participation has shrunk considerably on this counter as the volumes and open interest figures indicate. Avoid this counter for now. Market internals indicate a 63 % decrease in turnover and a 6% decrease in open interest.

Metals
Aluminium witnessed a loss of upward momentum after a big weekly gain in the prior week. The weeks range was within the prior weeks range, logging an inside pattern on the weekly bar charts. The price remains in a bearish channel and, therefore, upthrusts are likely to meet with unwinding till the price remains below the Rs115 levels. Avoid longs for now. Market internals indicate a 13% increase in turnover and a 24% increase in open interest.

Copper saw a truncated range, indicating pressure at higher levels. The volume and open interest rose on the downside indicate short selling pressure. The overall price range is compressing within a triangle and the bulls are lacking the buying conviction which can propel prices higher. Await a breakout past the Rs435 mark with high volumes and open interest expansion before adding fresh longs. Market internals indicate a 21% increase in turnover and a 22% increase in open interest.

Gold has closed at a new swing high and remained in the overbought area in the bargain. The safe haven buying after the Fed announcement and President Obama’s job creation endeavour persisted. The Rs28,275 level will be a significant area to watch as the bulls must keep the price above this level sustainably to be able to ward off profit takers. A sustained trade below the Rs27500 levels will trigger profit sales in the near term. Market internals indicate a 75% increase in turnover and a 13% increase in open interest.

Nickel has recorded minuscule gains on a week-on-week basis but the weekly range remained in a decline indicating a lack of clarity in the bull camp. If a sustained rally is to be triggered, the price must stay above the Rs1010 levels with higher volumes and open interest expansion. Await a breakout before buying. Market internals indicate a 57% increase in turnover and a 16% increase in open interest.

Silver managed the highest weekly close after the week ended August 20, 2011, and that is a sign of optimism. Unlike gold which showed a clear breakout on a closing basis, silver needs to close above the Rs66,750 levels to rope in fresh buying. Between the two precious metals, gold is marginally more vulnerable to profit taking, and silver offers a better longer term potential for gains.

Continue to nurse a bullish bias. Market internals indicate a 26% increase in turnover and a 4% increase in open interest.

Zinc continues to trade within a long term symmetrical triangle and the breakout of which will be triggered above the Rs110 level only. Till such a breakout occurs, any upthrust will be feeble and may terminate abruptly. Market internals indicate a 23% increase in turnover and a 15% decrease in open interest.

Energy
Crude oil has ended the week with net gains with an outside pattern (price range bigger than the previous week) which has bullish implications as long as the bulls keep the price above the weeks closing levels. The weekly chart shows the price gyrating within a bearish channel and the breakout is above the Rs4,200 levels which must be achieved for the next upthrust. Await a confirmed breakout before buying afresh. Market internals indicate a 32% increase in turnover and a 19% increase in open interest.

Natural gas has rallied in tandem with crude oil and logged a bullish engulfing pattern on the weekly candle charts. While this has bullish implications, the price is unfolding within a triangle and needs a breakout past the Rs190 levels before a buy can be initiated. Hold existing longs if any, await breakout before fresh buys. Market internals indicate a 2% decrease in turnover and 8% decrease in open interest.

— The writer is the author of A Traders 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