As a trader that believes in trading price action only, I am often asked if you can use price action to trade gold and silver, and the answer is emphatically a yes! Anyone that is consistently making money as a day trader is more than likely able to read a chart and understand what prices on that chart or telling them, even if they don’t call it price action trading. When gold and silver are trending, particularly when in a bull trend, it is a great market to trade, and if you use price action trading strategies, you will only increase your odds of success.
The thing with gold and silver at the moment is that we are in what I would describe as a large consolidation period, which is common after the bull run we had in the metals over the recent few years. We ran across this recent article by Tim Iacono that was posted at www.seekingalpha.com, and Tim had the following to say about the fundamentals of gold and silver:
More than ever before, precious metals markets are being driven by what the Fed may or may not do and that is simply a reality that traders and long-term investors must deal with, that is, until the U.S. gets a little closer to the “fiscal cliff” at year-end when potential credit downgrades and a sinking trade weighted U.S. dollar could have a far larger impact than a few Fed speeches about whether the U.S. economy needs further support.
For the week, spot gold fell 1.9 percent, from $1,626.30 an ounce to $1,594.70, and the silver price dropped 0.5 percent, from $28.68 an ounce to $28.53. Gold is now up 1.8 percent in 2012, down 17.0 percent from its 2011 high, and silver is now 2.4 percent higher this year, down 42.3 percent from its peak last year.
While it was nice to see the June 1st surge in precious metals, the price action of the last few days has surely left many gold and silver investors wanting, however, this is all part of a much bigger and longer correction process following last year’s highs as shown below.
It is easy to forget that the correction beginning in 2009 was the exception to the rule – not the rule – and that, when new highs are made, a 12- to 18-month period of consolidation is to be expected, rather than a hasty return to elevated prices.
The small squiggle in the black curve pointed to above representing the market action of the last two weeks should put the recent rise and fall into proper perspective – it was just a little blip in the broader scheme of things, despite the disappointment on Thursday.
The psychologically important $1,600 an ounce level that was breached and held on the first day of June has now become a major battleground in the gold market and some analysts say that, if this level is not held, a return to the low $1,500 an ounce range could follow.
If prices do move lower, look for China to buy more, as it was reported last week that the nation imported an impressive 102 tonnes of gold from Hong Kong in April as prices were falling. This was just below the record 103 tonnes imported last November and, at the current pace, this year’s gold imports are expected to exceed last year’s record import of 428 tonnes.
Since this total is added to domestic production for the world’s number one gold producer where gold exports are illegal, it is all but certain that Chinese gold demand will top that of India this year, perhaps exceeding the 1,000 tonne mark, with a looming announcement about just how much gold has been purchased by the People’s Bank of China that could come this year, next year, or whenever the Chinese government decides to tell the world. You can read the rest of Tim’s original article here.
What we like about Tim’s article is the discussion about the fundamentals of the metals, and how China and India are big buyers of both metals. While we don’t believe in buying and selling on fundamentals, we do believe that when the fundamentals are correct for a buy, that you begin to watch that market, but at the same time, use only price action strategies to determine when to enter and exit that same market.
Gold and silver will very likely continue its bull run at some point in the near future, and when it does, it should be another great move. If you already know and understand how to use price action trading strategies, then you should be prepared when the charts begin to signal an entry. However, if you are not familiar with price action entry strategies, then we suggest you spend more time here on our website studying our work. You can find more information about our price action trading strategies and improve your overall trading results considerably.
So yes, you can use price action to trade gold and silver, and we don’t think you can or should attempt to trade any other strategy than price action trading, so take the time today to learn how price action can improve your trading no matter what market you are interested in following. Get all of the facts and information on price action trading today at https://priceactiontradingsystem.com/pats-price-action-trading-manual/.