Falling metal prices over the past several months have punished many commodity traders such as the group affectionately known as the gold bugs. While it may appear that the bears will be in control of the price of most commodities, after closer examination it is clear that while precious metals are moving lower, but there could be an opportunity in buying industrial metals. (For more on this topic, check out: Investing in The Metals Markets)
Gold
A break below the 200-day moving average shown on the chart of the SPDR Gold Shares ETF (GLD) back in October was an early indicator of the selling pressure that was starting to take on hold in many of the metals markets. Results from the U.S. election in November was the catalyst that sparked the price to below the swing low of $118.42, which in turn triggered a bearish crossover between the 50-day and 200-day moving averages. The bearish crossover, also known as a death cross, was a clear signal to active traders that the long-term trend was shifting lower.
Silver
The bounce from the low of $15.34 to the recent swing high of $16.34, shown on the chart of the iShares Silver Trust (SLV) has many talking about a move higher in the price of silver. However, based on the chart, it looks as though betting on a move higher could be premature. As was discussed above, the U.S. election results pushed the price of the underlying asset well below the support of its 200-day moving average, which has triggered a bearish crossover between its long-term moving averages – common long-term sell signal. Notice how the 50-day moving average has consistently acted as resistance on attempted moves higher over the last half of 2016. Based on the recent pullback, Active traders would expect the selling behavior to continue, and the bears will likely look to protect their short positions by placing stop-loss orders above $16.81. (For more, see: These Charts Suggest Metals Are Headed Lower).
Industrial Metals
While precious metals have been under fire from bearish traders, industrial metals have quietly been outperforming many other assets classes. Talk of increased infrastructure spending and supply constraints in future years has sparked a rally in industrial metals such as copper, which could be presenting an opportunity for astute traders to take advantage. Based on the chart of the iPath Bloomberg Industrial Metals Subindex Total Return ETN (JJM), you can see that the 200-day moving average has propped up the price of the fund and the recent election has triggered the price to diverge upward. The upward sloping moving averages are a technical signal of a long-term moving higher, and many traders will likely look to protect their positions by placing stop-loss orders below $20.97. (For more on this topic, check out: Can Industrial Metals Make A Comeback?)
The Bottom Line
Precious metals have been under pressure from the bears in recent months and based on the chart patterns above; some traders may be betting on a reversal too soon. However, while most of the attention goes to precious metals, industrial metals such as copper are marching higher. At this point, it is looking like 2017 could be the year to shift from gold to copper. (For more, see: Traders Are Turning Bullish On Industrial Metals).
Disclosure: The author does not hold any of the above-mentioned securities.
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