Could Gold and Silver Be Relied on During the Recent Uncertainty?
Safe haven assets have been relied on for stability in uncertain times, so how did gold and silver fare during recent political uncertainties? TradeZero Ocean Place Cable Beach, Unit #1 Nassau, Bahamas
One of the things you need to learn for successful stock trading and investing is the concept of “safe haven�. Gold and silver are considered safe haven assets in investing, which means that you can hold on to them even in adverse political circumstances that negatively impact other areas of the stock market.
Safe Haven Assets By definition, safe haven assets are those investments that can increase, or at least retain, their value during various market disturbances and turbulences. So when the market experiences uncertainties, caused by various economic or external factors and heads through a downturn, investors seek safe haven investments so they can cut down on their exposure to loss. But safe haven assets do change over time. Last week, from September 4 to 9, was one of uncertainties with Hurricane Irma and North Korea’s missile testing threats. So how did gold and silver fare in those circumstances?
Silver Precious metals did rally early in the second week of September. Right from mid-2016, there has been the chance of a major breakout in the iShares Silver Trust ETF ($SLV) on top of a downward resistance line. It broke above $16.50 in the week preceding the September 4-9 week. As it keeps exceeding this level, it takes out a resistance level it has attained but failed at many times. This breakout has occurred despite this resistance www.tradezero.co
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level remaining intact for a long period of time, making it quite an achievement for this silver ETF.
Gold Now when you compare this with the performance of the SPDR Gold Shares ETF ($GLD) you can realize that there is more to SLV’s upside, there is more to go before it can hit resistance. GLD is only 2% away from its 2016 high, so it could hit its resistance really soon. But being over 20% away from its 2016 high, $SLV has more room to grow. The following charts from Tradingview.com illustrate the point: $GLD and $SLV correlate positively, with both being considered hedges. They also usually display a similar reaction to monetary policies and inflationary data. However, gold is more preferred by safe investors since it has displayed less volatility than silver. $GLD has managed to avoid large swings while $SLV has historically displayed greater volatility.
Risks Involved There are other risks involved too. With this recent rally both these assets are overbought on the basis of relative strength index (RSI), since when this indicator is nearing 70 it indicates the asset is overbought. The hurricane threat has now gone; and if the political tensions with North Korea subside, investors wouldn’t be as likely to keep investing in safe haven assets such as $GLD and $SLV. www.tradezero.co
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That’s the inherent problem with gold and silver. With their respective technical breakouts exceeding long-term levels of resistance, gold and silver are set for further upside. However, thanks to their short term overbought condition, there needs to be continued uncertainty in the global or domestic political situation to ensure they continue to rally. If things settle down, that wouldn’t be the situation.
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