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Global Commodity Technical Analysis Report

Natural Gas Outperformed the Commodity Basket, 2 Commodities Indicating a Reversal – Gold, Palladium

Jul 28, 2021

Global Commodity Market Wrap-Up

Last week, Commodity prices traded in a range due to lack of major macro events which restricted the prices to move either side in a big way. Also, rising dollar index weighed on the commodity prices. Precious metals mostly traded sideways with weak tone majorly due to technical correction while Base metals especially lead and copper showed some promising upside movement last week.

Same is in the case of Agricultural commodity basket as Soybean and Corn prices dropped slightly while US Sugar prices settled its weekly closing with positive tone. However, Natural gas clearly outperformed other commodities and pushed the commodity index with a sharp upside movement and witnessed 10.50% weekly gains while Crude oil prices have paused after an astonishing year till date performance.

In the current week, all the commodity segments are trading in a mixed tone as traders are waiting for results from the ongoing FOMC meeting. Markets are also keeping a close view on the 2nd quarter US GDP advanced estimates which may provide an impetus to the existing range bound commodity prices.

The upcoming macro events that may impact the market sentiments include an update on Crude Oil Inventory, US Unemployment Claims, FOMC Meeting, and US GDP Advance Estimate - 2nd Quarter.

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 Futures (COMEX: GCQ1) and Palladium Futures (NYMEX: PAU1) for the next 1-2 weeks’ duration:

Gold August Futures Contract (COMEX: GCQ1)

Price Action and Technical Indicator Analysis:

On the weekly chart, COMEX Gold price broke the downward sloping trend line resistance at USD 1792.50 level on July 07, 2021. Since the breakout, prices are sustaining above the downward sloping trend line. Moreover, prices are trading above the rising trend line support level at USD 1775.80 and also above the trend-following indicator 21-period SMA, signaling a bullish trend. The leading indicator RSI (14-period) is trading at ~48.20 level. Now the next crucial resistance level appears to be at USD 1850, and prices may test that level in the coming sessions (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 decreased by 0.11% to 1,027.38 tons for the week ending May 23, 2021 after the gold prices witnessed moderate losses of ~0.72% in the past week. Notably, Gold SPDR holdings declined by 13.5% YTD with the decrease in gold prices by 7.4% respectively. Normally, both the market indicators are highly correlated and typically move together.

SPDR Holdings versus COMEX Gold Prices

As per the above-mentioned price action and technical indicators analysis, we can conclude that Gold August Futures (GCQ1) 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:

NYMEX Palladium September Futures (NYMEX: PAU1)

Price Action and Technical Indicator Analysis:

NYMEX Palladium Futures is trading above the rising trend line support level at USD 2544 and continuously taking support of the same. Currently, price is trading in an upward trajectory, forming a series of higher tops and higher bottoms. Moreover, the prices are trading above the trend-following indicator 50-period SMA, indicating a bullish trend. The leading indicator RSI (14-period) is trading at ~49.84 level. Now the next crucial resistance level appears to be at USD 2870, and prices may test that level in the coming sessions (1-2 weeks).

As per the above-mentioned price action and technical indicators analysis, we can conclude that NYMEX Palladium September Futures (PAU1) 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 ‘Buy’ 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:

Futures Contract Specifications 

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 at a certain level with a slight deviation on either side. A slight deviation (Example 1.0%-1.5%) on either side in the ‘Entry Price’ can be considered depending upon the upside or downside potential expected and also taking into consideration the Target 1 levels and Stop-loss levels.

Note 1: Investors can consider exiting from the stock if the Target Price mentioned as per the Technical Analysis has been achieved and subject to the factors discussed above.

Note 2: 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.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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 July 28, 2021 (Chicago, IL, USA 02.50 AM (GMT -5). The reference data in this report has been partly sourced from REFINITIV. 

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.