In the last couple of years it has become a veritable challenge to invest successfully in precious metals. Since the 2011 peak and the correction that followed, investors have reasonably become more cautious when managing their savings and investment portfolio.
Charts and technical analysis have always been trusted tools for professional investors. They know better than to trust the advice given in the financial columns of newspapers.
Professional investors know that it is events round the world that mostly impact markets and market trends do not always mean that is the right way to go.
And that is exactly what the market is experiencing now with events in Ukraine effecting European equities and an economic slow-down in China raising question marks about the strength of the global economy.
However, traders cannot rely on world influences alone to determine the market, technical tools such as charts and statistics should not be ignored.
It goes without saying that “doing your homework” does take and effort, but you do need any training to read and understand charts or understand technical analysis offered by financial writers.
Gold price charts
A number of statistical charts are used to produce a reliable piece of technical analysis and the most widely known amongst them is the price chart.
Just by looking at a historical price chart for gold and silver you can easily see the pointy spike that formed in 2011. You can understand that it was a massive frenzy that suddenly boosted the price of gold from $1.500 to $1,800 per ounce in less than two months.
You almost feel compassion for the numerous fellow investors who paid even more than that for an ounce of the precious metal, convinced that “investing in gold you can never loose”. But how many were there really? And that’s where a second chart comes in handy.
The quantity chart, or volume chart as it is sometimes known looks at the amount of units bought and sold over the same period as the price chart. Upon studying the two charts side by side you will realize that there were progressively less buyers who were willing to risk paying such high prices for gold; on the other hand, it was very easy to find buyers when prices were free falling.
Price and quantity charts showing trend, resistance and support levels
Statistical charts do not record market psychology, but they can invariably be of great assistance for you to define your risk and decide on your buying or selling target prices as they do display short and long term trend and volatility, as well as resistance points when prices go up and support levels when they fall.
As a general rule, when dealing with the precious metals markets, prices will go up in times of economic or political turmoil (Ukraine) and the value comes down when the economy and currencies are performing well – so check on how well the US dollar is performing, particularly against the Euro and the Chinese Yuan.
You will find guidance advice on many sites such as coininvest.com, and before you know it you will be able to make technical analysis work to your advantage and gain long term profits.