Year 2020 has been a very volatile market for commodity and equity markets. Clearly the bullion counter has emerged as winner with around 33 per cent from 2019 Diwali to November 10, ahead of 2020 Diwali. Gold this year has touched an all-time high on both COMEX as well as the domestic market MCX. The bullion complex gave a massive 30 per cent return this year in just 10 months supported by strong fundamentals. This statistic should put to rest all the noise about plunging gold demand hurting gold’s prospects in 2020. Gold prices moved higher on November 13 (Dhanteras) as increasing coronavirus infections globally re-ignited concerns about the economic toll from the pandemic, while skepticism over the reach of a potential Covid-19 vaccine further boosted demand for the safe-haven metal.
Beginning of 2020, prices climbed as trade war going between US and China, in February end the whole world faced Corona pandemic. The accommodative stance of the central banks, stimulus measures, excess liquidity, the Covid-19 relief bill and lower bond yields were the other concerns among investors to create safe haven appeals. All these factors, including the volatility in the rupee, have impacted gold prices on the domestic front. India’s gold demand in the first three quarters fell 49 per cent from a year earlier to 252.4 tonnes as corona virus-triggered lockdowns hit jewellery demand. While overall gold consumption fell, demand for coins and bars, known as investment demand, jumped 51 per cent in the third quarter as rising prices attracted investors, keeping the sentiment high. In coming months bullion prices got supported on hope of a larger stimulus to bail out the coronavirus-battered US economy after democrat candidate Joe Biden occupies White House as the country’s 46th President.
Healthy sales during a recent festival Dussehra gave confidence to Indian jewellers to continue stocking up, while more supply started to make its way into Singapore and Hong Kong as dealers navigate around Covid-19-led bottlenecks. Indians jewellers were optimistic on sales on the occasions of Diwali, Dhanteras, and other festivals in November. We can witness an upswing in gold demand in the fourth quarter on account of these festivals coupled with a busy wedding season amid post-harvest. Notwithstanding high price and Covid shadow a good monsoon this year will boost sentiment.
On the technical front, the gold price continued to rally, reaching new multi-year highs. Now, gold prices have been corrected the Fibonacci retracement of 23.6 per cent from Rs56,191 to 50,400 levels. More correction can possible if it breaks below the support level of Rs49,200 which will attract to fall towards the Fibonacci retracement level of 38.2 per cent, Rs46,730 level. The Moving Average of Convergence Divergence (MACD) is trading above the resistance line, which is signaling for strong buying in medium to long term basis. The Relative Strength Index (RSI) 14 value is trading above 70, which are also signaling for buying for medium to long-term basis. In short-term support is seen around Rs49,200, break and sustain below this level can expect more downside movement towards Rs48,000/46730 mark very soon and resistance is seen around Rs51,700, sustainable trade above it can move again upside towards Rs53,500/55,500 respectively. For medium to long term, we recommend buy on dip strategy, investors can make long position between Rs46,000-48,000 levels for a longer horizon.
Silver futures on the MCX platform have settled higher at Rs65,635/kg on the previous week. At present prices are trading above the weekly 50EMA levels of Rs60,500 and also above 200 EMA levels Rs60,000. Buying can be seen in the counter if it continues to trade above Rs62,000 level, which can take the counter towards Rs64,500/66,000 in near-term. If it breaks below, the support level of Rs60,500 level and sustain can see further down side movements towards Rs57,500/55,000 levels respectively, which is the Fibonacci retracement of 50 per cent from the high of Rs77,749.
This counter reflected the actual health of world economy. Surrounded by all negative news of slowdown such as trade wars, political issues in the Middle East and multiple negative numbers amid Covid-19, had led to slowdown and increase in production wiped out the profit of crude prices. It couldn’t stay at higher levels and saw negative return of around 23 per cent from last Diwali to November 10 this year. While, from 2019 Diwali to October 10, 2020, natural gas posted 23 per cent return supported by lower domestic production, supply disruption in the Gulf of Mexico, higher US LNG exports and increased heating demand amid cold weather in some parts of the US.
Crude oil may trade in the range as oil prices are gaining after Joe Biden clinched the US presidency and buoyed risk appetites, offsetting worries about the impact on demand from a worsening coronavirus pandemic. Weakness in dollar index may also support the oil prices as the dollar hit a 10-week low as investors heralded Biden’s election as US President by buying trade-exposed currencies on expectations that a calmer. White House could boost world commerce and that monetary policy will remain easy. However, both Brent and WTI benchmarks could see headwinds in November as the latest news from the pandemic front is unlikely to give much hope to those waiting for a price recovery. Considering the perilous situation because of the resurgence in Covid-19 cases, Saudi Arabia, Iraq, Russia and Algeria had backed an extension of the current rate of production cuts, standing at 7.7 million bpd. Beside this, US oil production is set to climb as producers are tapping into a backlog of drilled wells left uncompleted to boost output. On other side, US President-elect Biden and his team are working on tackling the worsening health crisis. Promising news on Pfizer’s Covid-19 vaccine which would help people resume normal life and boost oil demand and prices.
The writer is a senior research analyst (commodities), SMC Global Securities