Cryptocurrencies and other speculative investment vehicles have been in focus over the past several weeks because of their volatility and rising prices. Historically, the risk-seeking portion of the market would look to asset classes such as precious metals in times of uncertainty and/or heightened volatility, but due to an underlying downtrend, it appears as though recent developments in this area are going unnoticed. In this article, we take a closer look at the charts and try to determine how strategic traders will attempt to profit from the upcoming move in precious metals. (For more, see: A Beginner's Guide to Precious Metals.)
Over the past several years, active traders have been moving toward using niche exchange-traded products for trading moves in commodities such as precious metals. One fund that is gaining traction among active traders looking for exposure to gold, silver, platinum and palladium is GLTR. On the chart below, you'll notice that the price recently broke beyond the resistance of an influential trendline. The breakout is a technical buy sign and could be used to suggest that there is a fundamental shift under way. Those who follow technical analysis will likely look to buy as close to the trendline as possible and protect their long positions by placing stop-loss orders below $62.20 or $61.87, depending on risk tolerance. (For more, see: 3 Charts Suggest That Now Is the Time to Buy Precious Metals.)
As many active will recall, the final months of 2016 were horrendous for the bulls looking to profit from a move in gold. While prices seem to have stabilized so far in 2017, there still has not been a clear signal of a new long-term uptrend line that many have been hoping for. Taking a look at the chart of the SPDR Gold Shares (GLD), it appears as though we could be nearing the key breakout point that many bulls have been waiting for. The recent break above key long-term moving averages and subsequent move toward the upper trendline suggests that the momentum is in favor of the bulls. While the price was able to move briefly above the trendline, it still is not technically enough to trigger a flood of buy-stop orders. Active traders will be watching this chart closely over the coming days because even two consecutive closes above the trendline could trigger a major uptrend that would likely last well into 2018. (For more, see: Does it Still Pay to Invest in Gold?)
Based on technical analysis, one of the most interesting charts in the public markets belongs to that of the iShares Silver Trust (SLV). As you can see on the chart, the bullish momentum has pushed the price toward the significant resistance of the 200-day moving average. This is of specific interest because a failed break above the combined resistance, which recently happened in June, would likely lead to a significant pullback. However, if the price of silver follows the other precious metals higher, a break above $16.18 could be all that stands in the way of silver making a major move higher. (For more, see: Commodities That Move the Markets.)
The Bottom Line
Precious metals and other commodities have been out of favor among many market participants and have been replaced by more speculative asset classes such as cryptocurrencies. However, based on the charts discussed above, a fundamental shift could be under way, and bullish moves on key precious metals-related funds are suggesting that this segment could be poised for a major move higher. (For additional reading, check out: Precious Metals Funds: A Golden Opportunity?)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own shares in any of the products mentioned.