Trading strategies for Gold and Aluminum by Bhavik Patel of Tradebulls SecJanuary 7, 2021
In 2020, gold prices were up by about 27 per cent while silver gained around 50 per cent. The Georgia runoffs will present the next key risk for gold and risk trades in general. Weakness in the US dollar continues to push gold prices higher. Low interest rate is also making gold an attractive bet and in 2021 we might see inflation coming up so that is also another positive factor for gold. Gold hit seven week high on Monday. The importance of today’s gains has to do more with follow-through buying after a stellar performance yesterday, rather than traders moving in to quickly take profits. Usually after such short run up in gold, money managers and professionals quickly use the opportunity to take profit but since that did not happen, it implies that the majority of market participants are overwhelmingly bullish. The push above $1900 showed buyers in action and now needs to break $1960 on the upside.
Silver futures bulls have the firm overall near-term technical advantage. Silver could see buyers waiting to accumulate on dips. The US dollar is getting weaker because of stimulus. $28 needs to be breached and once that level is breached, $30 level will come into play. Floor for the market is now $25 which is around 50 DMA. Gold/Silver ratio is around 71 and if it breaches below 70, we may see silver massively outperforming gold.
The oil price has been see-sawing between vaccine optimism and pandemic pessimism. Yet, it has managed a gradual recovery from its lows last year to around $50 a barrel now. Crude oil rallied as Russia agreed with OPEC+ not to raise output in February. With increasing cases, it made perfect sense not to increase the production. Saudi Arabia will make additional, voluntary oil output cuts of one million barrels per day (bpd) in February and March. We are bullish in crude and any dips should be an opportunity to go long.
Fundamentals have started turning bullish but now needs more cooperation from weather. Latest natural gas storage outlook suggests a tightening fundamental picture going forward despite neutral weather. In second half of January potential bullish weather pattern is developing. Next two weeks might be colder before temperature returns back to normal.
Buy Gold around 50,900 | TGT: 51,800 | Stoploss: 50,500
Gold has given breakout above $1920 in COMEX and has taken resistance around its usual zone of $1960-65. Cross over of 20 and 50 DMA on daily chart in MCX suggest that the recent breakout is expected to sustain. RSI_14 is around 66 so there is room before gold becomes overbought. No divergence and strong chart pattern suggest gold will test 51,800 so buy on dips near 50,900 for expected move till 51,800 and stoploss of 50,500 closing basis.
Buy Aluminum | TGT: 168 | Stoploss: 162
Aluminum has reversed its course after taking support at its 50 DMA. Now fresh breakout has occurred as prices are above 20 DMA and historically we have seen strong follow through once price breaches above 20 DMA. RSI_14 is at 58 with no divergence and the reversal has been accompanied by ‘Bullish belt hold’ candlestick pattern. So we recommend going long with expected target of 168 and stoploss of 162 closing basis.
Disclaimer: Bhavik Patel is Sr. Technical Analyst (Currencies/Commodities) at Tradebulls Securities. Views are personal.