Trend is the general direction – up, down or sideways – in which the price of an asset is heading for a prolonged period of time.
Trend is the general direction in which the price of an asset is heading and is of major importance for precious metals investors since once a trend is identified as such, it can help predict future price levels.
Trends move in three directions:
These are the trends that display past rises in a price of an asset and might indicate further price increases. To illustrate, let’s take a look at the following chart, which presents the quotations of SPDR Gold Trust Shares from October 2010 to March 2011 (chart courtesy of http://stockcharts.com/).
The upward trend is marked by a blue line which is pointing upwards. Hence the trend is an upward trend.
These are the trends that suggest that a decline in price took place in the past and might indicate further slumps. Let’s take a look at the following chart.
This is the same chart as above, however, now the blue line shows a downward trend. During this period of time prices had the tendency to decline and they roughly followed a line. This type of trend is called a downward trend.
Such a name encompasses trends in which prices oscillate around a certain level for a specific period of time. Sideway trends usually suggest that a decline or rally is likely in the future. The following chart presents the quotations of SPDR Gold Trust Shares from October 2010 to April 2011.
The blue line shows a sideway trend. Prices alternately go up and then go down fluctuating around the same level – in this case around $139 It is worth noticing that after such an inconclusive period of time a rally eventually took place. A sideway trend is called that because on the charts it seems that the prices float sideways without any extreme movements up or down (until the sideway trend ends).
In different time spans different trends may occur at the same time. From a long-term perspective you might observe an upward trend, while if you zero in on a particular part of this trend (therefore switching to a short-term perspective) it is possible that you will notice a downward trend. What is more, if you examine a long-term sideway trend, you will surely discover that it consists of various short-term upward and downward trends.
Because of the points raised above one cannot say that there is one trend on the market. Everything depends on the perspective here and you should adjust your perspective to the type of investment you would like to make.
Trend in Gold
The yellow metal displays trends, as shown before. Some of these trends can be quite significant. Both in terms of what implications they have, why they last and in terms of major breakdowns below the trend line.
The above monthly chart shows that gold went up in almost a straight line from 2009 to 2011. Actually, there was a major trend in gold starting around 2000-2001, but we focus on the narrower period here. First of all, in 2009 gold recovered from the liquidity-fueled drop of 2008. In this situation, gold returned to the uptrend. This could have been read as an implication that the move higher would continue. And it did, until 2011 came. In 2011, gold broke away from the long-term uptrend. This was the first hint that the bull market was over. It was further confirmed in 2012 and, more decisively, in 2013. Gold then entered a period of significant declines. The long-term trend, and then the break away from it, turned out to be an important yardstick to measure the market against.
Trend in Silver
Silver tends to trade in lockstep with gold, so it’s not quite surprising that the analysis of trends can also be applied to the white metal. Let’s take a look at the chart below. It displays the same time frame as the chart for gold but with a twist.
In 2009 silver was in a bull market since 2000-2001, after a rebound from the 2008 slump and it resumed the trend. This was a bullish indication. The trend up continued, just like it did for gold but the twist was that around mid-2010 the white metal decidedly accelerated its pace. The continued trend in silver, its steepness, and particularly the explosion in volatility in the first months of 2011 signaled a potential local top. What’s especially important here is that the acceleration took place before the top in gold was reached. So, the analysis of the trend for silver could have provided a signal not only for the white metal but also for gold. Later on, the break lower and away from the previous trend had similar bearish implications as it did for gold, particularly after 2012 and the sump in the first half of 2013.
Trend in Crude Oil
The black gold is no different than the yellow or white metal. In the case of crude oil, we use the weekly chart as an example, which means that we are focusing on a shorter time horizon.
Let’s take a look at the part of the 2018 uptrend that started in February. If we draw a trend line based on the local bottoms of the move, we see that the late-October break below this trend in crude oil could have been read as an important bearish sign. And crude oil obliged, continuing its sharp decline in the weeks to follow. So, the analysis of trends could have provided an investment signal in this situation.
Trend in USD
The U.S. dollar is traded in the Forex market. As such, it could be expected that it displays the same kinds of trends other assets traded in financial markets.
The weekly chart of the U.S. Dollar Index shows that trends might actually matter for the greenback. If you consider the trend in the U.S. dollar based on the local tops from 2017, you can see that the break above this line which occurred in April 2018 was actually an important juncture where the market shifted from a bearish situation to at least a short-term bullish move, which was then continued. Again, trends could have provided investors with signals in this situation.
Trend in Bitcoin
While Bitcoin is traded, its volatility makes the analysis of trends in the market somewhat more difficult than in traditional asset classes. This notwithstanding, the trends remain an important source of signals for the market, even if analyzed slightly differently.
Due to the extremely volatile nature of Bitcoin, we focus on the long-term chart of the NYSE Bitcoin Index. Notice that the vertical axis is a logarithmic one. Technical details aside, this means that in very sharp moves to the upside, Bitcoin’s moves one the log chart follow straight lines more closely than they would on a traditional chart. Even though this is the case, it is still hard to draw a long-term straight trendline for the currency. So, a trend in Bitcoin might be harder to identify. Because of that, we focus on a piece of this chart, namely the last three quarters of 2017 and the beginning of 2018. This is the period when Bitcoin went from $1,000 to $20,000. Now, once Bitcoin closed below this line and then confirmed the break below the line, the bullish party was over. Bitcoin went from $20,000 to $5,000, and lower. In spite of the difficulties with analyzing trends in Bitcoin, it turns out that doing so might provide us with important signs, particularly for the long term.
Trend in Stocks
The analysis of trends in the stock market is a fairly standard method of approaching the market. Nevertheless, sometimes this straightforward tool gives important insights into what is going on in the market.
To display this we focus on the above monthly chart of Apple Inc. (AAPL). This long-term chart shows us various trends in the stock and an overall long-term bullish one. Let’s zoom in on the 2015-2017 period. Apple took a hit then and broke down below a previous bullish trend, thereby establishing a short-term bearish trend marked with a blue line on the chart. The situation initially looked bearish but in 2016 the stock came back above this short-term bearish trend line and confirmed this move. This was a bullish indication and a sign of a potential return to the bullish trend. And we did see a further rally, which took the stock from around $120 to around $240. Once again, the analysis of trends could have provided important signs for the investors. This sort of analysis can also be extended to the stock market as a whole so that we analyze the trend in stocks.