Increased global volatility over the past several weeks has triggered a shift to asset classes that are deemed to be "safe-havens." One of the greatest beneficiaries of this change is hard commodities such as precious metals. In this article, we take a look at how funds related to precious metals have been performing, and we try to identify possible trades that active traders may want to consider in the weeks and months ahead. (For more, see: Precious Metals Funds: A Golden Opportunity?)
The gold bugs have had much to cheer about in recent weeks as the price has started to trend higher. Based on the weekly chart of GLD, it appears as though the party could just be getting started. More specifically, active traders will likely want to take note of the recent breakout of a symmetrical triangle. This pattern is generally used to identify a major shift in the underlying trend, and most traders will be looking for a target price equal to the height of the pattern plus the entry point. In the case of GLD, the first targets will likely be set near $137, and traders will look to protect against a sudden shift in fundamentals by placing stop-loss orders below the nearby trendline around $122.50. (For more, see: 3 Positive Chart Patterns for Precious Metals.)
The price of silver has struggled to reverse the downtrend that has dominated the momentum since 2013. Taking a look at the long-term chart of SLV, you can see that the price closed above a key long-term level of resistance last week, which is the clearest long-term trend change since the 50-week moving average crossed below the 200-week back in summer 2013. Active traders will use the recent breakout to confirm that the reversal is complete, and those who were waiting on the sidelines will now be looking to take a position. From a risk management perspective, bulls will likely set their stop-losses below $16.58 in case of a sudden reversal. Based on this chart, the upcoming silver trade could be offering the best risk/reward setup found in any public market. (For further reading, see: Forget Gold, Invest in These Precious Metals.)
Active traders looking for an added layer of diversification for their precious metals exposure may want to consider checking out GLTR. In addition to gold and silver, this fund provides investors with exposure to rising platinum and palladium prices. As you can see below, the pattern looks nearly identical to those shown above and carries a similar risk/reward profile. (For further reading, check out: 3 Charts Suggest That Now Is the Time to Buy Precious Metals.)
The Bottom Line
Precious metals have been in the process of reversing a long-term downward trend. As discussed above, price action over the past couple of weeks has triggered some major buy signals, offering some of the best risk/reward setups in nearly half a decade. (For more, see: The Uptrend in Commodities Is Just Getting Started.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.