Precious metals and other assets classes that are often looked to during times of market uncertainty are seeing a spike in interest from active traders. For some active traders, the increased interest in this relatively uncorrelated segment could suggest that global investors are starting to apply hedges to their portfolios in case of sudden market selloff. In this article, we'll take a look a closer look at several charts that are commonly used to gauge the trend of precious metals and try to determine how traders are positioning themselves for the weeks and months ahead.
Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR)
Active traders who are looking to gain a broad perspective on where the group of precious metals is headed often turn to niche funds such as the Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR). As you can see below, the sharp bounce from the March lows pushed the price back above its 200-day moving average, where the price was able to find solid support in the months of April and May. The bounces off of the support were a clear indication that the bulls were in control of the momentum, and move a higher has now sent the price toward the resistance of the February high and looks poised to break higher over the days ahead.
A close above $86.26 would likely be met with a flood of buy stop orders and trigger a long-term move higher. Some followers of technical analysis may choose to buy near current levels in anticipation of a break. Others who are more risk averse may wish to wait for a confirmation of a breakout. Regardless of the approach, the chart pattern below clearly shows that bullish traders are in control of the momentum.
As one of the most widely followed commodities, it is not a surprise to hear that gold has been a strong performer so far in 2020. Based on the chart of the SPDR Gold Shares (GLD) shown below, the recent breakout beyond the resistance of an ascending triangle pattern (shown by the blue circle) suggests that the move could only be getting started.
Based on the pattern, most traders will likely set their short-term target prices near $180, which is equal to the entry point plus the height of the pattern. Stop-loss orders will most likely be set below the 50-day moving average, which is currently trading at $163.49, in case of a sudden shift in market sentiment.
Silver is another widely followed precious metal that looks well positioned to make a major move higher. Based on the chart of the iShares Silver Trust ETF (SLV), followers of technical analysis will most likely want to note how the recent move away from the 200-day moving average has triggered a bullish crossover between the 50-day and 200-day moving average, which is known as the golden cross.
This long-term buy signal is used by followers of technical analysis to mark the beginning of a long-term uptrend. From a risk-management perspective, stop-loss orders will most likely be placed below the 50-day moving average near $16 to protect against a sudden selloff.
The Bottom Line
Precious metals have been gaining traction over the past several weeks, which for active traders could suggest that bulls are losing conviction in the strength of the market's uptrend. In the event that market uncertainty rises, this niche segment of the commodities market could be well poised to make a sharp move higher.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.