ChartWatch: Gold versus Silver, which metal wins?

Ever since humans began to appreciate shiny metal things, silver has taken second spot to gold – but this isn’t the case for traders in the precious metals market. Silver tends to be the more volatile of the two, and it’s often seen as an option on the gold price, that is, when gold moves, the moves in silver can be magnified. 

Certainly, silver has had instances through history where it has been cornered by certain investment cliques, and this has at times resulted in short squeezes which have rocketed its price. It also means traders are always looking for the next big silver move! 

More recently, both gold and silver have captured the attention of Aussie investors as each has enjoyed a sharp run up in its price through 2024. However, as I’ve reported in regular updates on the two in Evening Wraps, a blow-off top had developed in each metal’s chart in April, delivering the first major test of their respective uptrends this year. 

Thursday’s move potentially terminates the April correction, and therefore sets both gold and silver up for new highs. In this ChartWatch, I’ll provide a technical analysis reader on the two precious metals, as well as highlight a few ways you can trade them. 

Silver Futures COMEX

The supply zone between 29.29 and 30.19 is the elephant in the room for the silver chart

The silver futures chart is bouncing back strongly after a pullback from the blow off top punctuated by the 12 April and confirmed by the 22 April candle. Note also the substantial expansion of volume through this phase – it is consistent with the creation of a major point of supply at 30.19.

The correction pushed below the dynamic demand expected at the short term uptrend ribbon, but held at the previous point of supply (now acting as a point of demand) at 26.26.

The candles and price action from there are commendable, the manifestation of a return to nearly total demand-side control, culminating in Thursday’s long white candle with high close.

Thursday’s candle set 27.24 as a point of supply, and the location of 27.24 within the short term uptrend ribbon confirms it is again providing dynamic demand. As long as the silver futures price continues to close above 27.24 the short term uptrend remains intact.

As good as the recent price action and candles appear, the elephant in the room for silver’s technicals is the major supply zone created by peaks between 29.29 and the major point of supply at 30.19.

There’s nothing to suggest this zone can’t be tested, but given the candles and volume from that occurred there, it will take a substantial amount of excess demand to push through to new highs.

Watch the candles in the 29.29-30.19 supply zone. White bodies and or downward pointing shadows in the zone will indicate the demand-side is indeed accounting for the supply expected there, while black bodies and upward pointing shadows will confirm it. 

Commensurate with candles, watch out for a major peak at or below 29.29-30.19 – this would indicate the supply-side is back in control. 

Gold Futures COMEX

Gold is running second to silver, but there’s still plenty to like about its current technical picture

I’m deliberately doing gold second here (congratulations silver, you came first for once!) because I want to contrast a couple of things.

First, note how much more volatile the silver price action is compared to gold’s. Again, a reminder of why traders are attracted to silver – greater volatility equals greater trading opportunities. 

But, as a trend follower, silver’s reputation as a volatile plaything of traders isn’t always always beneficial. Note how the price of silver sliced straight through the dynamic demand expected at the short term uptrend ribbon – whereas gold has held it nicely. 

It works the other way around, too. Thursday’s long white candle on silver is a far superior demand-side showing compared to gold’s more circumspect example. Silver’s price action (relative location of rising peaks and rising troughs) is also better.

So, let’s give silver two gold medals for candlesticks and price action so far, but one silver medal for respecting the short term trend ribbon.

Everything else for gold looks solid after Thursday’s demand-side candle. 2585 is now confirmed as an important point of demand. As long as gold futures price continues to close above this point, the short term uptrend is intact.

2363.4 is the next key point of supply, and then 2433.3-2448.8. Gold’s also second here, given it still has one point of supply to overcome prior to testing its blowoff top supply zone. 

Again, as with silver, the candles will inform us from here. Continued demand-side showings (i.e., white bodies and or downward pointing shadows) will continue the resumed short term uptrend, while supply-side candles (i.e., black bodies and or upward pointing shadows) will impede it. 

Commensurate with candles, watch out for a major peak at or below 2433.3-2448.8 – this would indicate the supply-side is back in control. 

How to trade gold and silver

The first instinct of most Aussie investors when posed with the above question is: “I rush out and buy several ASX gold and silver stocks!”.

Nope. This is rarely the best way to trade gold and silver.

Gold and silver stocks are businesses. They must find and dig the stuff out of the ground and process it into something which they can sell. This is expensive and risky.

History is littered with examples of times when the price of gold and silver were rising, but certain ASX gold and silver stocks went south in a big way.

Check your records. I bet you’ve had at least one (two, three, ten!?) of these.

Traders know that if you want to take advantage of an expected rise in gold and silver, generally the best thing to do is simply buy gold and silver. If the price goes up, you win.

Listen to Grandpa Simpson…

In the olden days when I started out in markets, we really only had two options if we wanted to trade in gold and silver. You literally walked down to the Perth Mint (as a West Aussie this wasn’t very far) and bought the stuff and stuck it under your bed, or you traded futures.

Both are still viable options, but they have a couple of drawbacks. Owning physical metal is just plain cumbersome, and the deposits required to trade futures are prohibitive for smaller traders. For example, a standard gold futures contract on COMEX covers 100 troy ounces and requires an overnight margin of US$10,000.

The upside of course, is that you get 100% of the move in the underlying commodity. No mucking around with declining grades, management flittering away the company’s cash, or the wall of your favourite gold stock’s mine caving in.

CFDs

Perhaps the two easiest ways for average Aussie investors to trade gold and silver is through contracts for difference (CFDs) and exchange traded funds (ETFs).

CFDs are very much like futures contracts, but they don’t have an expiration date, so you won’t have to worry about contract rollovers. The main benefit of CFDs is that they typically allow you to 100% replicate a move in the underlying commodity.

As for margins, most CFD providers offer mini or even micro contracts, so margin requirements can be as little as 5% of official futures contracts.

This isn’t meant to be an advertisement for CFDs, merely I’m pointing out the fact that many traders use them to trade gold and silver – so go and do your own homework and work out whether CFDs are suitable for you.

ETFs

The main benefit of using ETFs to trade gold and silver is simplicity. This method doesn’t require setting up new accounts or figuring out margin requirements. ETFs are traded on the ASX just like normal shares.

But, unlike the alternatives discussed so far, you might not get the whole move in the underlying asset. This is because ETFs generally have fees built into their pricing, and some of them use derivatives like futures and options, both which can suffer from time decay, which can negatively impact the price of the ETF.

There are several options available on the ASX for trading gold and silver specifically. I’ve listed them in the table below, each with links to their respective provider, so you can learn more about them.

List of ASX gold and silver ETFs

Note the comparative changes for gold over the past 24 hours, 1 month, and 1 year are: +1.6%, +0.6%, +19.9%; and for silver are: +3.7%, +1.6%, +20.5% (this will help you get a better idea of how well the ETFs tracks its underlying commodity).