August 24, 2020

Precious Metals: Where Do They Go From Here?

Precious Metals: Where Do They Go From Here?

When I see such situations in the market as we witnessed in precious metals lately, I think about two trading mantras. The first one says, “any profit is a profit,” aka “lose chances, not money,” and the second is “corrections are tricky.”

Both metals’ charts started to play out precisely as per the structure that was shown in my previous update, and I am very grateful as you supported my view with an overwhelming majority of voters. Indeed, it paid well, although the depth of the first leg down was just devastating as it exceeded the preset range.

Usually, the first legs are so strong and sudden as they trigger panic in the market. Although I expected this move weeks ahead, when it plays out, you’re never emotionally ready for such a storm as it literally could have no boundaries. The fear had it all. Some traders think they could sit through such enormous volatility. I doubt that risk management/capital/margin could allow it as gold lost more than 10% from the top to the bottom of the first leg while silver has been smashed, losing 22%.

The dust is quietly settling down after that fall, and we can adjust the plan. Let’s start with gold’s daily chart.

Precious Metals: Where Do They Go From Here?
Chart courtesy of tradingview.com

Again and again, we witness the real power of the trends as the “falling knife” of the first leg down was successfully rejected with the downside of the trend channel (gray). The price bounced off so hard that it retraced more than 60 percent of the preceding drop. Then it lost more than 60 percent again, but of the rise. If it continues to make such seesaw moves within a contracting range, then we will see a Triangle pattern shaping on the chart. I highlighted that option with a green color. I put two converging trendlines with almost ideal angles of a triangle, but the real path could differ, although the model should remain intact. The break above the last peak will trigger the upside move.

Why did I say an option? Because I see more than one path.

The original idea in orange color of a sideways consolidation consists of three equal legs – one down, one up and last one down. According to that scenario, we could see another move higher to retest the all-time high of $2075 before the last leg down kicks off to touch the bottom of the first leg at $1863.

Whales of the precious metals market could try and wash out the remaining weak hands pushing the market lower from the current level within a red option to make a sharp zigzag down in the area of $1800 where the second leg is equal to the first leg down if it goes down instantly.

Bottom pickers usually wait around the former valley to buy some, if you are in – take care of the risk as the second leg could be deeper and this trade would be pure guessing. It is better to wait for a higher low before planning any precious metals purchase to let the market show its bottom itself.

Precious Metals: Where Do They Go From Here?  Loading …

The updated silver daily chart follows.

Precious Metals: Where Do They Go From Here?
Chart courtesy of tradingview.com

Silver briefly broke below the mid-channel support and then quickly got back above it again. I copied here the same options as I put on the gold chart except for the red path, as I think that silver suffered enough loss already compared to the gold.

The triangle could have a deep enough counter-move to build the upside of the pattern through its peak. The move down should touch the downside of the model now. The break above the last peak would trigger the bullish signal.

The original path in orange color of a sideways consolidation ideally should keep within a $29.86-$23.39 range. We should see the retest of the former top first, and then the metal will be poured from there down to the valley of the first leg according to that scenario.

Precious Metals: Where Do They Go From Here?  Loading …

Intelligent trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.