The rebound rally in gold is well established with a move above $1,290. The upside target is near $1,350.
It's good to see the gold uptrend continuing but the upside target delivers only 4.65% profit. Rather than trade gold there are more effective and profitable ways to trade this rebound. Gold's companion, silver, has similar characteristics but offers a higher return for the same behavior.
Silver lags the gold price behavior. Silver has a resistance level near $18.75. This is the equivalent to the $1,290 resistance level on the gold chart. Silver lags gold so the silver price is only just moving above resistance near $18.75.
A breakout at this level has a target near $21.00. This trade offers a 12% return compared with a 4.65% return from gold for the same price behavior move.
Silver has a longer term upside target of $26.00. That's 36.8% from the current price near $19.00.
Silver is slower to move but it has more room to move and this delivers better profits. Note the silver price is shown in cents.
The first resistance level is near $18.70. This was decisively broken. The price tested the weak resistance level near $21.00 but then collapsed below support and tested support at the lower edge of the long-term GMMA.
The uptrend starting in January with silver was well defined using a Guppy Multiple Moving Average (GMMA) indicator. The long-term GMMA remains well separated and this generally shows strong buying support from investors. The fall to the lower edge of the long-term GMMA was not good but silver developed a consolidation and rebounded more quickly than gold.
The long-term GMMA acts as a shock absorber and we saw quick buying from investors slow the market fall and contribute to the rapid consolidation and rebound behavior.
The rebound from the lower edge of the long-term GMMA has a resistance target near $18.75..
The strong separation in the long-term GMMA confirms a continuation of the uptrend. The same confirmation features are seen on the gold chart. Aggressive traders should use the ANTSSYS method to trade the rally rebound above $18.75. Cautious traders and investors should wait for rebound proof with a move above $8.75 before joining the rally for a move above $21.00 and towards the long-term target of $26.00.
The similarity in the patterns on the gold and silver charts means the silver price follow the behaviour of the gold price. The best trade is to watch gold and execute the trade on the same price move in silver.
Daryl Guppy is a trader and author of The 36 Strategies of the Chinese for Financial Traders, available at guppytraders.com. He is a regular guest on CNBC's Squawk Box and a speaker at trading conferences in Asia, Australia and Europe.