More precious than gold?

05/22/20
  • Silver and platinum futures staged high-momentum breakouts last week
  • Thursday’s pullbacks setting up second-chance trades?
  • Silver-mining stocks have also surged in recent days

Gold may be the most actively traded precious metal, but lately it hasn’t been the most action-packed.  

The following chart shows that while gold has put together a very respectable 16% rally since March 19 (and is still hovering near seven-year highs), silver has jumped 42% and platinum 45%—and that’s even after the latter two markets sold off sharply yesterday:

Chart 1: June gold (GCM0), July silver (SIN0), and July platinum (PLN0), 3/19/20–5/21/20. Precious metals, futures price chart. Gold, silver, platinum. Silver, platinum outshine gold.

Source: Power E*TRADE


A big chunk of those gains in silver and platinum came in explosive breakout moves that unfolded in just the past 10 days: July silver futures (SIN0) rallied 15% from May 13 to May 20 (Wednesday), while July platinum futures (PLN0) jumped nearly 22% during the same period.

Both markets are known for their volatility—when metals are moving, silver and platinum tend to make bigger price swings, up and down, than gold—so yesterday’s pullbacks (more than 3% intraday for silver, more than 8% for platinum) weren’t exceptional, especially after such high-momentum rallies.

And in possible good news for metals bulls, they may offer another opportunity for traders who missed the initial breakouts.

Experienced traders understand that even the longest, strongest trends experience setbacks, and that after a high-momentum breakout, markets often pull back—frequently, to “test” the breakout level or price consolidation they just escaped. And both silver and platinum have well-defined breakout points:

Chart 2: July silver (SIN0) and July platinum (PLN0), 3/19/20–5/21/20. Silver and platinum futures price chart. Potential pullback levels.

Source: Power E*TRADE


For example, bullish traders who saw the recent silver breakout as the beginning of a potential challenge to the market’s February highs above $19 may look for buying opportunities if prices pull back at least to the April high around $16.50, if not to the late-April, early-May highs around $16 (lower dashed line).

Similarly, platinum bulls could be looking for the July futures to retreat at least to their early-April high around $838 (prices fell as low as $851.30 yesterday), or perhaps deeper into the April–May trading range, which has a lower boundary around $750. July platinum was trading above $1,000 before the February sell-off.

Finally, although stock traders should always remember that trading mining stocks isn’t the same as trading the commodities themselves—a price trend in a metal doesn’t necessarily translate into one in the stocks that dig it out of the ground—the chart below shows a couple of silver mining companies, Majestic Silver (AG) and MAG silver (MAG), that staged their own breakouts shortly after silver. Both stocks have actually outperformed silver since March 19:

Chart 3: First Majestic Silver (AG), MAG silver (MAG), July silver (SIN0), 3/19/20–5/21/20. Silver stocks joined breakout.

Source: Power E*TRADE


As is the case with the silver and platinum futures markets, conservative short-term traders are likely to make their moves after such stocks give back some of their recent gains.

In any trade, but especially in markets known for their volatility, exercising patience—“letting the market come to you”—can be the difference between booking a profit and taking a hit.

Market Mover Update: Boeing (BA) sustained its recent bounce with an 8% intraday rally yesterday (see “Rotation watch”).

Holiday reminder: Don’t forget—Monday is Memorial Day, US stock exchanges will be closed.

Today’s earnings include: Alibaba (BABA), Marriott Vacations (VAC), Deere (DE), Foot Locker (FL)

 

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