How to trade precious metals

How to trade precious metals? Gold & Silver edition

The price of gold as well as silver has been steadily growing in the past couple of months. Will it continue to rise or return to the same level it was in June? Let’s analyze these two assets and see what drives the prices up. 

What influences gold and silver prices?

Gold is one of the most popular assets for investment as investors purchase it as a way of diversifying risks. The price of gold, much like the price of oil, correlates with the US dollar. When the US dollar rises, it may influence dollar-denominated assets to go down in price. And vice versa, whenever the US dollar drops, this could drive up the price of gold. Another crucial factor that influences the price of gold is inflation: as it grows, so does gold. Same goes to the price of silver, though in comparison to gold, silver is a smaller market. 

The recent world events lead to the US dollar depreciation, with the country opening up after the pandemic. In July, US consumer prices rose 0.6 percent from a month earlier in June 2020, slightly beating market consensus of a 0.5 percent gain. It is the first increase in four months and the strongest since August of 2012. This explains the rapid growth of dollar-denominated assets, however, it does not necessarily mean that this growth will continue. 

Technical analysis

The economic factors play the key role in the price formation of these assets, however, in order to attempt to estimate the trend, it is necessary to perform technical analysis, as well. Let’s have a look at the daily chart to evaluate the possible developments. The indicators RSI, MACD and a Simple Moving Average are used for this analysis. The candle period is 1 day.

Gold analysis

As it is shown in the screenshot above, both trend indicators – SMA and MACD – are showing a bullish trend. As those are lagging indicators, they are reflecting the past price performance and it is evident that the last 3 days Gold was dropping in price, with the current ask price at roughly 1934. Still, the leading indicator, RSI, is showing the reversal of price with the indicator line approaching the value of 50. 

Silver analysis


For Silver, we can see signs for possible trend reversal, as the candlesticks are crossing the SMA from below and the RSI indicator is at the 50 value – not overbought and not oversold, but right in the middle. The MACD indicator is still showing a bullish trend, yet the indicator’s bars are above the 0 line. 

Depending on the strategy, traders may perform their own technical analysis as the trend will differ on longer timeframes versus short (1,2 hours) ones. Though indicators do not always display the exact information, signals received from them may be taken into consideration when trading precious metals on the platform. As it is hard to know for sure what will happen with the prices, a risk management strategy is advisable: a stop loss or a trailing stop loss could save traders from dramatic losses if the price goes against them.

Conclusion

Precious metals have always been one of the most popular trading assets. However, an all-round analysis is necessary for an objective evaluation of the commodities. Trade now

Credit: Tatyana Scherbakova

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
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