Gold and Silver Turning Higher at Trend Support
Gold and Silver Turning Higher at Trend Support
Stock prices for both of those precious metals are up more than 13% year-to-date
- Gold (/GCM4) and silver prices (/SIN4) have started to turn higher after retracing their one-month moving averages last week.
- Both /GCM4 and /SIN4 are now up by more than 13% year-to-date, outpacing each of the major U.S. equity markets.
- A significant number of binary event risks are on the calendar in the coming days that should introduce two-way risk to precious metals intraday.
Geopolitical tensions have ratcheted lower over the past week, leading to a collapse in volatility from equities to energy. Precious metals are no different, where implied volatility ranks (IVRs) have dropped significantly, having contracted by about one-third in gold (/GCM4) while down by half in silver (/SIN4) in less than two weeks.
But unlike how the rise in implied vols was a tailwind for precious metals, the contraction in vols hasn’t necessarily hurt either /GCM4 or /SIN4. In fact, after the initial plunge last week that saw both precious metals return to their one-month moving averages … nothing else happened. /GCM4 and /SIN4 have since stabilized, treating trend support as just that. Given the technical setup of longer-term charts (e.g. monthly timeframes over the past 20 years), there is little reason to view the current pullback as anything other than a potentially golden buy-the-dip opportunity.
That said, it’s unlikely that precious metals will be able to whistle past the graveyard of macro calendar risk this week: the May Federal Open Market Committee (FOMC) meeting on Wednesday and the release of the April U.S. jobs report on Friday, both of which appear to confirm the perceived shift in the trajectory of the Federal Reserve’s main rate this year. If precious metals have shifted their attention away from Israel-Iran and back to interest rates, even the best laid technical plans of mice and men could go awry.
/GC Gold Price Technical Analysis: Daily Chart (September 2023 to April 2024)
As has been the case since the rally began in early-March, gold prices (/GCM4) have not experienced a breach below the daily 21-/34-EMA cloud, and this characteristic of the rally has remained even with the recent pullback. As noted last week, “for bulls, this may be the pullback they’ve been waiting for to get in if they missed the first two legs higher.” It likewise thus remains that a bullish perspective may be best expressed via ATM call spreads given the relatively staid state of volatility.
/SI Silver Price Technical Analysis: Daily Chart (July 2023 to April 2024)
Last week it was observed that “back at the daily 21-EMA, [/SIN4] may now be presenting traders with an opportunity to get in long at trend support. Volatility metrics have been crushed over the past two weeks ([from IVRs north of 100 to where they are now at 40.1]), making bullish options plays relatively cheaper than where they were earlier this month. It thus remains: for traders who missed the initial move higher, long exposure (via an ATM call spread) may be appropriate as long as this week’s low of 26.715 holds.” 26.715 has held, keeping intact the bullish perspective. Reinforcing the view that a meaningful low has been formed has been the fact that the daily 21-/34-EMA cloud has served as support as it has moved above the high /SIN4 carved out in December 2023.
Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
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