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Global Commodity Technical Analysis Report

Inflationary Forces Pushing Up the Commodity Prices, 2 Commodities with a ‘Buy’ Perspective – Gold,

May 12, 2021

Global Commodity Market Wrap-Up

Precious Metals: Bullion witnessed strong movement last week led by Silver Futures with ~6.20% gain followed by Gold Futures with ~3.60% gain for the week ending May 07, 2021. The recent week started on a slightly positive note and now prices are hovering around the last weeks' close.

Base Metals: Base metals witnessed an upside movement and closed higher for the week ending May 07, 2021. The top gainer for the week remained Copper Futures with ~6.28% gains followed by Lead Futures with ~4.0 % upside. Other base metals such as Nickel Futures, Zinc Futures, and Aluminum Futures also witnessed more than 2% gains. This week, base metal prices are trading marginally lower but continues to sustain at higher levels.

Energy: Crude oil prices managed to post weekly gains of 2.06% coupled with Natural Gas which moved up 1%. The energy sector is currently trending up and witnessed positive movement in the ongoing week.

Agriculture Commodities: Corn Futures prices witnessed an impressive gain of more than 8% last week followed by Soybean Futures and Sugar Futures up by 3.62% and 3.00%, respectively. In the recent week, Soybean and Sugar continued the upside trend; however, corn trading marginally lower.

Macro-Economic Tailwinds for Global Commodity Prices

Commodity prices have shown significant gains in the recent months aided by the macroeconomic events such as increasing concerns around the rise in inflation rate coupled with higher impact of the second wave of COVID-19 recently felt in the Asian countries. As per the recent comments by the US Treasury Secretary Janet Yellen, the interest rate hike may be required to prevent overheating in the US economy.

Besides, weakening of the dollar index which is inversely correlated with the commodity prices also fueled the spike in prices for Sugar, Soybean, Gold etc. as weak dollar supports the demand and the overall bullish momentum in commodity prices.  Further, as per the US Department of Agriculture, the US is expected to record a large US Sugar production this year and next year.

The United States being a global economic barometer can influence the overall commodities market movement. The upcoming US specific macro events that may impact the market sentiments include an update on Consumer Price Index, WASDE Report, Unemployment Claims, and Retail Sales that is released monthly.

Having understood the global commodities performance over the past one week, taking cues from major global economic events, and based on our technical analysis, noted below are our recommendations with the generic insights, entry price, target prices, and stop-loss for Gold June Futures (COMEX: GCm1) and Sugar No. 11 July Futures (ICE: SBn1) for the next 1-2 weeks’ duration:

Gold June Futures Contract (COMEX: GCm1)

Price Action and Technical Indicator Analysis:

The COMEX Gold June futures (GCM1) rose by ~3.60% on a weekly basis and closed at USD 1831.30 level on 07 May 2021. On 11th May 2021, the yellow metal settled at USD 1836.10, marginally down by ~0.10%. The COMEX Gold price broke out of its horizontal channel pattern on the daily chart at USD 1814.10 level on 07 May 2021 and are sustaining above the upper band of the pattern. The price registered a decisive break out of the channel pattern suggesting a change in the trend from sideways to upward. Conversely, the gold prices are also trading above an upward sloping trendline support level of USD 1780.

Further, prices are trading above a golden positive crossover between the 21-period SMA and 50-period SMA. On the daily chart, the momentum oscillator RSI (14-Period) is trading at ~64.80 levels and the gold volume has shown a sharp spike from the last couple of trading sessions, which indicates optimism among the market participants. Now, the next resistance level appears to be at USD1880, and the commodity may test that level in the short term (1-2 weeks).

Standard & Poor's Depositary Receipt (SPDR) Gold Holding Analysis:

SPDR is an exchange-traded fund issued by the Investment Management Group, State Street Global Advisors’, trading since 1993 on the American Stock Exchange (AMEX). SPDR holdings can be considered as a directional indicator of Gold prices. The gold ETF holdings at SPDR increased by 0.80% to 1,017.04 tons for the week ending May 07, 2021 after the gold prices witnessed moderate gains of ~3.61%. As shown below, Gold future prices are moving ahead of SPDR holdings from the past four weeks although both the market indicators are highly correlated and typically move together.

Gold SPDR Net Holding vs. COMEX Gold Prices

As per the above-mentioned price action and technical indicators analysis, we can conclude that Gold Futures (GCm1) is looking technically well-placed for a ‘Buy’ rating. Investment decision should be made depending on an investors’ appetite on upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered. Technical summary of our ‘Buy’ recommendation is as follows:

ICE Sugar No. 11 July Futures (ICE: SBn1)

Price Action and Technical Indicator Analysis: The ICE-US Sugar No. 11 Jul Futures' prices are trading in an upward direction for more than a month and gained ~24% from April 2021 low. Prices are trading above a sharply upward sloping trend line and broke another upward sloping trend line by an upside. Prices also broke a major resistance level of USc 17.89 by an upside on May 11, 2021 with higher volumes, further supporting an upward direction.

On a daily chart, prices are trading above the trend-following indicators 21-period SMA and 50-period SMA with a positive crossover and appear supportive for positive trend. The leading indicator RSI (14-period) is trading in positive territory at ~72 levels. Now the next crucial resistance level appears to be at USc 18.96, and prices may test that level in the coming sessions (1-2 weeks). Any further move above USc 18.96 accompanied by higher volumes may extend buying in the commodity till USc 20.00 level.

Global Sugar Supply and Demand Balance Sheet

USDA has decreased the world sugar production estimate for 2020-21 by 6.211 million tons to 181.866 in its November 2020 estimate resulting in lower sugar ending stock for 2020-21 to 42.807 million tons. The lag in production output is mainly due to lower sugar production estimate in Thailand due to dry weather conditions. Normally, Thailand’s sugarcane crushing operations start from December onwards and last till the end of May every year. However, the dry weather condition in various regions resulted in cane shortage which led to the end of crushing season by March 2021.

As per the above-mentioned price action and technical indicators analysis, we can conclude that Sugar No. 11 July Futures (SBn1) is looking technically well-placed for a ‘Buy’ rating. Investment decision should be made depending on an investors’ appetite on upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered. The summary of our recommendation is as follows:

Upcoming Major Global Economic Events

Market events occur on a day-to-day basis depending on the frequency of the data and generally include an update on employment, inflation, GDP, WASDE report, consumer sentiments, etc. Noted below are the upcoming week's major global economic events that could impact the commodities prices:

Disclaimers 

Investment Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.80:1.00), however, returns are generated within 1-2 weeks’ time frame. This may be looked at by Investors with sufficient risk appetite looking for returns within short investment duration. Investment recommendations provided in this report are solely based on technical parameters, and fundamental performance of the commodities has not been considered in the decision-making process. Other factors which could impact the commodity prices include market risks, regulatory risks, interest rates risk, currency risks, and social and political instability risks etc.

Entry Price: For the recommendation(s), the Entry Price is assumed to be in a range. However, a slight deviation on either side in the ‘Entry Price’ can be considered depending upon the potential expected or indicated.

Note: How to Read the Charts?

The Green colour line reflects the 21-period moving average while the red line indicates the 50- period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The Black colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the commodity. Commodity with high volumes is more liquid compared to the lesser ones. Liquidity in commodity helps in easier and faster execution of the order. 

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance. 

Risk Reward Ratio: Risk reward ratio is the difference between an entry point to a stop loss and profit level. We suggest ~80% Stop Loss of the Target 1 from the entry point.

The reference date for all price data, volumes, technical indicators, support, and resistance levels is May 12, 2021 at 03:20 AM (GMT -5) Chicago, IL, USA.
 

Note: Trading decisions require a thorough analysis by investors. Technical reports in general chart out metrics that may be assessed by investors before any commodity evaluation. The above are illustrative analytical factors used for evaluating the commodity; other parameters can be looked at along with additional risks per se.


Disclaimer-

Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

Kalkine Media LLC, an affiliate of Kalkine Equities LLC, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.