Gold is flirting with its most expensive prices since August 2011, and it’s doing so in a historically unique manner. Other precious metals such as silver and platinum are less than half the price they were at the time of gold’s previous high, and many stocks have bounced back to approach or in some cases exceed all-time highs of earlier this year.
Divergences Among Precious Metals
Silver and platinum both boast high positive correlations to gold and have moved higher with it in recent trade, but neither metal is seeing anywhere near as much success as this outperforming precious metal. Gold is up close to 20% year-to-date, while silver and platinum are approximately up 5% and down 10% on the year, respectively.
Divergences among commodities in the same asset class are considered natural, but there is often opportunity in trading relationships that deviate from historical norms. Pairs trading creates a neutral viewpoint on a broad market by taking equal yet opposing positions in two specific assets in the class. Markets like gold, silver, and platinum converge and diverge regardless of where precious metals in general are headed.
Precious Metals At Large
However interesting pairs trading might be, it is a complex process that can be quite involved for the modern trader. Formulating a strategy around the asset class at large could be a better place to start. Precious metals are traditionally described as “flight to quality” commodities, but with stocks safely near their highs they are either forecasting a volatile future or being driven by something else.
The demand for gold and its counterparts could be coming from US dollar weakness or low inflation or other forces at play, still the price extreme stands as a distinctive tradable opportunity. Small Precious Metals gives access to gold, silver, and platinum in a single futures market that is appropriately sized for the individual trader, so you can put your opinion on metals into action with relative ease no matter the reasoning behind it.