Precious metals are off to an impressive start to 2018, with most surpassing key levels of resistance in the first few trading sessions of the year. Active traders are taking note of the bullish price action, and many are suggesting that this could be the start of a major move higher. In this article, we take a look at several gold-related charts to get an idea of how traders will trade the move higher and how the momentum is affecting underlying miners within the sector.
Retail investors looking to gain exposure to gold tend to focus their attention on exchange-traded products such as SPDR Gold Shares. This fund owes its popularity to its relatively cost-efficient structure and scale. Taking a look at the chart below, you can see that the trendlines have defined the trades over the past quarter, and many are expecting this trend to continue. Specifically, the recent breakout suggests that the bulls are in control, and most traders will likely watch for a range to develop beyond the 52-week high of $128.32. (For more, see: Now Is the Time to Buy Gold and Silver.)
As gold prices start to rise, one of the segments of the market that stands to gain is naturally the gold miners. The recent close above the dotted trendline on the chart of the VanEck Vectors Gold Miners ETF suggests that the bulls are in control and that the prices could be gearing up for a strong move higher over the coming months. Some traders may even view the buy signal as an early indicator that investors are starting to hedge their portfolios in case of a spike in volatility. (For further reading, check out: 3 Positive Long-Term Charts for Precious Metals.)
Junior miners are another group that stands to benefit from a strong move in gold prices, and recent price action on the chart of the VanEck Vectors Junior Gold Miners ETF confirms that technical traders are starting to establish their positions. The recent bounce off of the support of the 200-day moving average is a common buy signal that chartists look for when confirming a change in the underlying trend. Based on the breakouts on the charts above, traders will likely anticipate a move above the swing high and then on toward the September high shortly after. Stop-loss orders will likely be placed below either the 50-day or 200-day moving average, depending on risk tolerance, in an attempt to maximize the risk/reward. (For more on this topic, check out: 3 Positive Chart Patterns for Precious Metals.)
The Bottom Line
Bullish price action in the gold market has active traders across the globe readying themselves to take advantage of surging momentum. While some traders may choose to trade the metal, others may look to segments such as the miners that will stand to benefit from higher prices. Based on the patterns shown above, traders will likely look to buy the breakouts on GLD and GDX while anticipating a break for GDXJ in the coming days. Once GDXJ is able to surpass its short-term resistance, the next targets for each of the funds would be the September highs. (For more, check out: Long-Term Traders Are Bullish on Commodities.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.