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Oil prices may soon see a correction, sell MCX crude futures for a target of Rs 2,700

June 06
15:05 2020

Sunilkumar Katke

Gold price gains are capped by improving equity markets, backed by easing lockdowns and opening up of economies. The stimulus packages by countries to support their economies is also helping the investor confidence in riskier assets, keeping the safe haven appeal of the yellow metal in check, with prices finding support around $ 1,700 mark from their earlier range of $ 1,750 per troy ounce.

At MCX, the prices are rangebound around Rs 46,200-46,300 per 10 gram levels from their previous levels of Rs 49,000 few weeks back. Long-term fundamentals do support the gold prices with lower bond yields, US-China relationships on all-time low and concerns over the impact of pandemic on economic slowdowns and a possible recession.

We suggest a buy on dips strategy in Gold at MCX around Rs 46,000 mark with a stoploss around Rs 45,500, targeting Rs 47,000 in a week to 10 days’ time.

Silver has outperformed the gold prices recently, touching Rs 51,000 per kg at MCX. However, the gains were capped by rising US-China tensions over Hong Kong and civil unrest in the US. With China showing promising manufacturing data and stimulus package on offer to support the economy, helped the prices maintain the levels of Rs 48,100 per kg at MCX and about $ 17.6 per troy ounce at Comex.

With ECB announcing stimulus package to support euro zone economy, the industrial metals may retain their upward journey. We recommend a buy around Rs 47,800 levels with stoploss around Rs 47,200 targeting Rs 48,900 mark during the coming week.

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WTI Crude oil prices rallied backed by improvement in sentiments as most countries have announced stimulus measures to uplift their economies and restart manufacturing activities coming out of lockdowns. The positivity is also on hopes over extension of OPEC production cuts in July as well considering the current deadline expires by June-end.

We believe the prices have already improved owing to above news, and may soon see a correction and hence suggest a sell at MCX Crude around Rs 2,925 per barrel with stoploss around Rs 3,000 targeting Rs 2,700 again in the coming week. WTI crude may touch levels of $ 35 a barrel again from their current levels of close to $ 38.5 mark.

Industrial metals had a mixed response with positive bias as Copper, Nickel and Zinc prices surged backed by improving Chinese data, reduction in unemployment rate in the US, stimulus measures by US, China and the euro zones to uplift their economies by supporting their manufacturing sectors.

We expect the prices to hold these levels for some time and stay in a rangebound mode as all is not well yet for the economies with fears or economic slowdown due to the pandemic and a probable threat of 2nd wave halting economic activities again. Considering the above fundamentals, we expect some profit booking coming in Copper, Nickel and Zinc, so recommend a sell in MCX copper around Rs 429 per kg with stoploss around Rs 433 targeting Rs 422; sell in MCX Zinc around Rs 164 per kg with stoploss around Rs 165.5 targeting Rs 152 and sell in Nickel around Rs 970 per kg with stoploss at Rs 980 targeting Rs 950 levels in a week’s time.

The author is Head – Commodity and Currency at Axis Securities.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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