Understanding Trends in the Precious Metals Market
When an article written in the financial pages reads: “Local gold prices will likely continue on an uptrend in the long-term considering the trendline, the highs, and the lows since 2019.” Do you find yourself wondering what makes a precious metal trend?
In the world of financial and precious metals markets, there is an old saying: “The trend is your friend.”. It is a simple enough saying but how can you discern what the prevailing trend is? What makes understanding trends particularly challenging is when you are looking at multiple time frames. Understanding precious metal trends and how they operate is important for success within the metals market. Fighting the trend is like trying to swim against the current.
The markets do not exclusively fluctuate up and down. Movements tend to be more cyclical like the four seasons of weather. There are four components of a market move which are: accumulation, advancing, distribution and decline.
Accumulation is when price movements are in a set range. If the price breaks above the set range, the market then moves to the advancing phase.
An advancing market is also referred to as an uptrend. A market will continue to advance until buyers have exhausted their appetite for further purchases. At that point, sellers enter the marketplace.
After an advancing market stalls, causing the prevailing trend to slow down or halt, a new range-bound area forms within which the sellers start to outweigh the buyers and the market price begins to decline.
As the market falls below the lows of the most recent trade range a downtrend is established. This will remain in effect until the sellers no longer outnumber the buyers.
These cycles can occur in any time frame. Longer-term trends may be made up of many shorter-term cycles. Depending on what time frame you use to look at the gold market, the movement within that period will affect the view of what the current trend is. For example, a chart that shows weekly price movement may show something completely different than a chart with a one-hour time frame.
Understanding the structure of a trend is important, however, what is equally crucial are the different types of trends seen in precious metal markets. There are three types of trends that are most important in the precious metal price analysis. They are the secular trend, intermediate trend, and long-term trends. The biggest difference between them is the amount of time in which they exist.
Secular trends can last for a period of anywhere from one to three decades. Within a trend like this, you will witness many cycles of shorter-termed fluctuations that ultimately resolve themselves to the direction of the prevailing trend. They are often easy to see when you look at monthly charts as the trend is long in duration. Depending on the direction of the trend there are two sayings associated with these markets. In a rising market, the saying is “buy the dip.” This refers to slips in value that are perceived to be opportunities to buy at a cheaper price. The opposite is for a falling market where one sells anytime the market rises. The saying, in this case, is “sell the pop.”
Sudden directional changes are a key component of intermediate trends. These are primarily the result of either economic or political releases and the response of the market to that news. These cycles tend to last anywhere from two to eight weeks.
How to Identify Trends
One of the most important steps in identifying trends is when they transition from one direction to another. These are the times when you want to reassess your position. Is it advantageous to lock in profits by selling some part of your position? Do you want to add to your current holdings?
These turning or swing points are not always easy to identify. It is somewhat akin to selling at tops and buying at bottoms of a market. Do not worry, nobody can do this all the time. The key is recognizing the shifting trend early so you can act decisively.
If the markets are in a consolidation pattern and you don’t perceive any opportunities to trade. Do not force it! Wait for a proper signal.
At Guardian Gold, our team has decades of experience following the precious metals markets trends. Doing your own research is very beneficial when you have some experience under your belt. Having access to a group of dedicated professionals that will enhance your research ability is priceless. We are here for you to be your chosen partner in precious metals dealing.
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