Originally published by guppytraders.com
Lurking in the market are a number of well correlated commodity and currency pairs. Sometimes they are pairs that move in lockstep with each other. Other pairs move opposite to each other. Steady and reliable trading strategies are built around these steady relationships.
Gold and silver are one such pair. They almost move in lockstep like a pair of ballroom dance partners but usually with gold in the lead by a few days. A successful trading strategy is to look at gold but trade silver for the same move and with higher leverage.
In more recent times this dancing pair appears to have undergone a divorce. The trend behaviour in the two metals has diverged considerably. In broad terms, gold reacted away from resistance near $1350 in April 2018. The retreat tested the support level near $1210 around September 2018 before a new rally took gold back to a high near $1350 in March.
Gold shows a weak uptrend with limited strength to mount a successful breakout above the long-term resistance level $1350.
Silver has moved very differently and continues a secular downtrend that started in July 2016. In broad terms, silver broke through support near $15.80 in July 2018. It moved quickly to the next support level near $14.15 around November 2918 and then had a good rally back to around $15.80 in early 2019.
Unlike gold, silver has a more bullish aspect even though some of the weekly price behaviour resembles that of gold. Its bullish because silver has already broken above the resistance level and this retreat is part of a consolidation pattern. Its bullish because the long-term Guppy Multiple Moving Average (GMMA) has stopped falling and is beginning to flatten out and turn upwards. The short term GMMA is testing the lower edge of the long term GMMA as a support level. All of this activity takes place near the resistance level which suggests a consolidation prior to a breakout.
Gold shows a strong pullback from a strong resistance level. Long term GMMA support is weak.
We can no longer trade silver as a proxy for gold. Silver by itself, offers a more bullish opportunity with an upside target near $16.80.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.