When volatility and uncertainty started to plague the financial markets in October, strategic traders started to shift their focus to segments such as reserve currencies, precious metals and fixed income. Given the recent news that Newmont Mining Corporation (NEM) is acquiring Goldcorp, Inc. (GG) in a $10 billion deal, all eyes are now on the metals and their associated miners. In the paragraphs below, we'll take a look at the state of the precious metals market and try to determine where prices could be headed from here and how active traders will look to position themselves over the months ahead.
ETFS Physical Precious Metals Basket Shares (GLTR)
Active traders who are trying to get a sense of a sector's trend often turn to technical tools such as trendlines and moving averages. For those interested in precious metals, a favorite fund to follow is the ETFS Physical Precious Metals Basket Shares (GLTR), which has recently broken above the combined resistance of its 200-day moving average and a descending trendline.
The surge in upward momentum has triggered a reversal in the direction of the 50-day moving average, which is now set to close above the 200-day moving average in a move known as a golden cross for the first time since May 2017 (shown by the blue circle). This long-term buy signal is often used by followers of technical analysis to mark the beginning of a major uptrend. Traders will likely look to enter a long position as close to $61.14 as possible in an attempt to maximize the risk-to-reward ratio. Stop-loss orders will likely be placed below the newfound support in case of a shift in underlying fundamentals or a surprise change in sentiment.
SPDR Gold Shares (GLD)
Historically, investors who wanted to hold a position in gold were required to hold futures contracts within a futures trading account. With the rise in popularity of exchange-traded products such as the SPDR Gold Shares, direct exposure is now available to average investors in a form that trades like a stock. Taking a look at the chart of the SPDR Gold Shares (GLD), you'll notice that the price has marched consistently higher since breaking above the resistance of the 200-day moving average in December. Bullish traders will now be keeping a close eye on longer-term resistance near $124 because a break above this level could spark a significant flood of buy orders and lead to a sharp run toward previous highs near $130 and beyond.
iShares Silver Trust (SLV)
No analysis of precious metals is complete without a look at silver. For this task, many traders turn to the chart of the iShares Silver Trust (SLV). As you can see below, the price has been able to notch several consecutive closes above the resistance of the 200-day moving average, which has proven to be a historically difficult task. The move higher, as shown by the blue circle, is significant from the perspective of an active trader because it shows that the momentum is in clearly favor of the bulls and that a move toward $16 in the coming months is a likely target.
The Bottom Line
Precious metals don't really need much help gaining the attention of active traders during periods of volatility and uncertainty. With the recent acquisition of Goldcorp, more interest is being given to the segment than usual. The added exposure combined with the breakouts beyond major levels of resistance could act as catalysts to significant moves higher in the prices of precious metals over the coming several months.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.