Metals have received much attention in recent days due to factors such as the announcement that Barrick Gold Corporation (ABX) is launching a hostile bid for Newmont Mining Corporation (NEM). Given the news along with the rising prices of all metals over the past several weeks, it could be an interesting time to take a closer look at the charts to determine why recent price action could be signaling the beginning of a much stronger run higher.
Most attention when it comes to the metals segment of the commodities market goes to gold. As one of the most popular hedges to market volatility and inflation, gold tends to perform well when investors get nervous about the future. With the increased activity in the M&A market within the precious metals area, investors are starting to pay closer attention because it could be a leading indicator of a continued move higher.
Followers of technical analysis will often look to exchange-traded products such as the SPDR Gold Shares (GLD) for insight into the future direction of the market. As you'll find below, the price of gold has been trading within a confined range shown by the two dotted trendlines. Active traders will likely use these guides to determine the placement of their buy and stop orders. Furthermore, the recent crossover between the 50-day and 200-day moving average, known as the golden cross, is often used to signal the beginning of a long-term uptrend. Given the occurrence of this popular buy sign, it wouldn't be surprising to see traders ready themselves for adding to their position in a pullback.
As the rarest of the precious metals, platinum often appeals to active traders as the purest way to trade increased attention in metals. Based on the chart of the ETFS Physical Platinum Shares (PPLT), the most common ETF used as a barometer for tracking the price of physical platinum, you can see that the price recently broke above the combined resistance of two trendlines and its 200-day moving average. This extremely strong reaction to key technical levels suggests that the bulls are in control of the momentum and that prices could be poised for a significant run higher. Some active traders will likely set their target prices near the 2018 highs around $95.
Base metals are also gaining attention as the price of the Invesco DB Base Metals Fund (DBB) – a common fund used to track a basket of copper, zinc and aluminum – has recently closed above its 200-day moving average for the first time since June 2018. As described above, the bullish price action suggests that momentum is now in the control of the bulls and that prices could be headed toward $17.60, which is equal to the entry point plus the height of the pattern.
The Bottom Line
Metals are in the spotlight for many followers of technical analysis. Bullish price action, nearby support and clearly defined risk/reward setups make this one segment of the commodities market that looks poised for strong growth over the coming weeks or months.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.