The recent strengthening of prices from across the commodities markets has sparked renewed interest in assets such as gold, silver and platinum. During a commodities rally, it is not uncommon for many retail investors turn to precious metals, and based on the charts that we'll discuss in this article, it appears as though tolerance for risk is increasing and that followers of technical analysis could be poised to benefit over the coming few months. (For a quick refresher on this topic, check out: A Beginner's Guide to Precious Metals.)
Investors who seek exposure to a broad basket of precious metals generally turn to products such as the Invesco DB Precious Metals Fund. Taking a look at the chart below, you can see that the price has been trading within an established descending channel pattern since the early days of the summer. The recent close above the dotted trendline will likely be used as a buy sign by those who use technical analysis as part of their investment strategy, and it could act as a catalyst for a sharp rise in momentum over the coming days. Traders will also likely use the bullish crossover between the moving average convergence divergence (MACD) indicator and its signal line as conformation of the breakout. Stop losses will likely be placed below Friday's low in case of a sudden shift in sentiment. (For more on this topic, check out: 3 Positive Chart Patterns for Precious Metals.)
Active traders will likely also want to focus their attention on the chart of the SPDR Gold Shares. Like DBP mentioned above, GLD has also broken beyond the resistance of a defined channel pattern. This is the world's largest fund that offers exposure to physical gold, and the recent buy signal that was triggered by the MACD crossing above its signal line suggests that there is plenty of upside opportunity for those willing to take on risk. From a risk-management perspective, stop-loss orders will likely be placed below the dotted trendline, swing low or August low, depending on risk tolerance. (For more on this topic, check out: 3 Charts That Suggest It's Time to Buy Precious Metals.)
Silver prices experienced a major sell-off after breaking below the horizontal trendline back in early July. This chart is an interesting example of how traders expect prices to move when a major level of support or resistance gets broken. Now that the selling pressure seems to be subsiding, it could be time for the bulls to consider adding back exposure. Based on the relative strength index (RSI), MACD and stochastic indicators, the downside momentum seems to have been overdone, and it resulted in oversold readings, which suggests that a bounce higher could be in the cards. (For more on this topic, check out: Traders Turn to Precious Metals Among Volatility.)
The Bottom Line
Precious metals have been out of favor among the active trading community for most of the summer, but recent price action is suggesting that the group could be worth a closer look. Oversold readings and clear buy signals on key technical indicators suggest that the group could be due for a continued move higher over the coming weeks or months. (For more, see: The Industry Handbook: Precious Metals.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.