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How to Trade Gold, Silver, and Precious Metal Miners in This Still-Dicey Market


Precious metals may be close to a bottom, but there could be sharply lower prices still to come.

The way to trade gold and other precious metals-related investments is not that complex, but you must be willing to wait for price to provide low risk entry points before getting involved. Precious metals are like any other investment with regards to trading and investing: there are times to be long, times to be in cash, and times to be short (benefit from falling prices).

Since 2011 when gold and silver started another major bull market correction, the best position has been to move to cash, or sell/write options against your positions to protect your investment until the next trend resumes.

If you take a look at the chart below of gold you will notice that in 2008 we had a similar breakdown in price, which purged the market of investors who where long gold. And if you compare the last two breakdowns, they look very much the same. If price holds true then much higher prices are likely to unfold at the end of 2013.

The key here is for the price to move and hold above the major resistance line. If it can do that then we are looking at a possible breakout to gold at $2600 - $3500. With that being said, gold and silver may just be starting a bear market. Depending what the price of gold does when my resistance level is touched, my outlook may change from bullish to bearish.

Also with last week's economic numbers getting better in the US, I do have concerns that gold may be starting a bear market, but we will not know that for several more months.

Gold Daily Technical Chart

Major technical damage has been done to the chart of gold. This can be seen as bullish or bearish price action, but until a price and volume pattern unfolds which puts the odds on the bullish or bearish side, I remain neutral.

Silver Daily Technical Chart

Silver is in the same position as gold. The question is whether this is a shakeout or breakdown.

Gold Mining Stocks Daily Monthly Chart

Gold mining stocks broke down a couple months ago and continue to sell off. If precious metals continue to move lower, then mining stocks will continue their journey down. The chart below was made in February and it has, for the most part, played out as expected. While I do not try to pick bottoms (catch falling knives), I do like to watch for them so I am prepared for a new position when the time and chart become bullish.


In short, precious metals continue to be in a downtrend. While they look to be trying to bottom, it is important to remember that the largest moves take place in the last 10% of a trend. So we may be close to a bottom, but there could be sharply lower prices yet.

Editor's Note: Chris Vermeulen offers more content at his sites, and Traders Video Playbook.
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No positions in stocks mentioned.

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