Anticipated sharp upside breakout in the Gold prices is expected to have a negative impact on the Nifty/Sensex, and could possibly lead to a weakness in the Indian market, over the next 4-6 months.
HDFC Securities
The detailed study of monthly chart of Gold, as per International and domestic trend, is hinting at a possibility of a sharp upside breakout of a crucial resistance/pattern in coming months
The upside breakout points of Gold (LME, India and MCX Fut) could be set USD 1360-1370, 31,500 and 31,100 levels, respectively, in the next 1-2 months
A decisive/sustainable upside breakout in the underlying could lead towards the upside targets of USD 1520 (LME approx. 13.6%), 35,500 (Gold India approx. 13.2%) and 35,075 levels (MCX FUT approx.14%) respectively, over the next 4-6 months
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Normally, the price movements in Gold and in equity markets (India and across the global) are moving in a rotation. The fear of decline in equity markets are always raise optimism in the Gold, as a safe investment haven
Therefore, anticipated sharp upside breakout in the Gold prices is expected to have a negative impact on the Nifty/Sensex, and could possibly lead to a weakness in the Indian market, over the next 4-6 months.
A study of gold in LME market.
The attached long term chart (monthly) of Gold LME (Gold-London Metal Exchange) is indicating a gradual increase in the commodity price, in the last one year
Post sharp weakness in Oct-Nov 2016, the commodity prices have witnessed slow upmove, as per the formation of higher lows and higher highs
Presently, the gold prices have stuck at the key overhead hurdle of $1363 (brown dashed horizontal line), which is a strong multiyear hurdle for this precious commodity
Previously, we have seen Gold price decline from near $1363 resistance levels, but recently held firmly near the key overhead hurdle. The selling seems to have losing its strength, after reaching the hurdles, in the last few months
This abovementioned pattern is sounding positive bias. Normally, such formations eventually result in a sharp upside breakout of the key hurdles, thereby expanding upside momentum. Hence, one has to be alert on the upside breakout of the resistance
Monthly 8 period positive swing indicator like +DMI is slopping down, but is still holding a dominance (against its counterpart –DMI)
Monthly 8 period trend strength indicator like ADX is showing flat movement or gradual upmove, from near 15-18 levels, in the last few months
Normally, ADX turning up from near 18-20 levels, with +DMI holding dominance, are indicative of a possibility of resumption of a sharp upside momentum. Hence, we need confirmation of further strength.
Meanwhile, here is its outlook on gold in India.
The attached monthly timeframe chart of GOLD INDIA (left side chart) is signaling a larger consolidation movement, in the last three months.
After a formation of bullish hammer type pattern during Dec 17 as per monthly chart, the commodity price in India has witnessed a gradual upmove, amidst a choppy trend.
The study of bollinger band is signaling a squeeze action (both bands are narrowing), and currently the commodity price is tagging upper Bollinger band ~Rs 31,500-31,700 levels.
Normally, such squeeze patterns in Bollinger bands are indicative of lower volatility, and it suggests a possibility of expansion of volatility soon
The underlying commodity repeatedly tagging upper Bollinger band signals a possibility of a sharp upside momentum in coming months (possible widening of bands by resumption of spurt in upside volatility). Hence, there is a higher possibility of upside breakout in the Gold prices
Monthly 14 period RSI has placed at 60 levels. As per the formulation of RSI, its uptick above 60 levels could mean strengthening of upside momentum in the underlying
MCX GOLD FUT: The Gold Future, as per larger timeframe like monthly, is showing a sideways range movement in the last couple of months, post sharp upmove of Jan 18
Presently, MCX Gold Fut is moving within an upward sloping channel (orange parallel trend lines), and also facing resistance at down sloping intermediate trend line Rs 31,000-31,100 levels (blue dashed down trend line, connecting previous tops)
The underlying gold futures repeatedly hitting the overhead hurdles, and subsequently not showing weakness from near the resistance is positive indication, and could suggest possibility of a sharp upmove above the hurdle for near term.
The monthly 5 period MACD indicator is showing positive indication, above its equilibrium line (zero line). This pattern is signaling intact of upside momentum in the underlying, as per monthly timeframe chart.