Global Commodity Market Wrap-Up

Last week, mixed trend was witnessed in the commodity basket as Dollar index prices were not able to sustain at higher levels that boosted the commodity prices especially the Base metals. Meanwhile, Gold and Silver prices took support from the key levels technically and settled in red last week. Yellow and silver metals prices are consolidating at key levels and with the recent Commodities Futures Trading Commission (CFTC) report suggesting drastic increase in net long position in Silver also indicates that the precious metal prices might get support in the coming weeks.

Base metals continue to trade in a bullish tone despite of weak Chinese official Manufacturing PMI data which declined to 50.1 in August 2021 compared to 50.4 in July 2021. Lower inventories data kept the base metal prices on higher side. Notably, Copper and Zinc prices witnessed a weekly gain of ~2.79% and ~4.13% respectively. On the Energy front, Crude oil prices witnessed marginal gains of 0.62% however, all the limelight was stolen by Natural Gas prices which recently made new 3-year high and settled last week with overall gains of 4.80%.

Agricultural commodities showed some negative weekly movement last week taking cues from the September WASDE report. Reportedly, soybean, sugar, and corn prices dropped last week after the increase in production estimates in the WASDE report. Notably, Corn and Soybean price settled at -1.24% and -0.43% last week.     

In the existing week, precious metals, energy, and agricultural segment picked up the rally while base metals lost momentum from higher levels. However, most of the base metals are getting technical correction and might re-bound towards their new high levels keeping in view lowering inventory data stored in LME warehouses.   

The upcoming macro events that may impact the market sentiments include an update on Industrial Production data, US Unemployment Claims, Prelim UoM Consumer Sentiment, and Building Permits 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 Futures (COMEX: GCV1) and Zinc Futures (LME: CMZNZ21) for the next 1-2 weeks’ duration:

Gold October Futures Contract (COMEX: GCV1)

Price Action and Technical Indicator Analysis:

On the daily chart, COMEX Gold price broke the downward sloping trend line by an upside and prices are sustaining below an upward sloping trend line since the breakout. Prices are currently trading above its 21 and 50-period SMA that indicates bullish trend. The leading indicator RSI (14-period) is trading at ~50.74 level. A golden crossover of 21-period SMA above 50-period SMA can be visible on daily chart that also support the recent rally in prices. Now the next crucial resistance level appears to be at USD 1866.00, 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 0.04% to 998.17 tons for the week ending September 10, 2021 along with moderate decline of ~2.26 % in the gold prices past week. Notably, Gold SPDR holdings declined by 15.8% YTD with the decrease in gold prices by 7.20% 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 October Futures (GCV1) 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:

Zinc December Futures (LME: CMZNZ21)

Price Action and Technical Indicator Analysis:

On the daily chart, LME Zinc price witnessed a breakout of the downward sloping trend line resistance at USD 3037 level on September 08, 2021. Moreover, prices are trading above the rising trend line support level at USD 2971 and continuously taking support of it. Also, the prices are trading above the trend-following indicators 21-period SMA and 50-period SMA, indicating a positive trend. The leading indicator RSI (14-period) is trading at ~54.61 indicating bullish momentum. Now the next crucial resistance level appears to be at USD 3178, 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 LME Zinc December Futures (CMZNZ21) 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 September 15, 2021 (Chicago, IL, USA 04.22 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

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.