Is it just me or is the precious metals trade getting a little crowded? Don’t get me wrong, I firmly believe that gold and silver are great long-term investments/hedges. Yet I can’t help but notice the price action and volume for both metals, which looks to me like they are getting exhausted.

Silver

The iShares Silver Trust (NYSE: SLV) chart below shows an extremely high-volume reversal candle in early November, which typically leads to lower prices and sometimes to a major change in the trend.

That being said, silver remains in an uptrend with the possibility of a bullish pennant forming. On the other hand, there is a possible head-and-shoulders pattern forming. I will be looking for light-volume sideways chop, keeping a close eye for a possible neckline breakdown or a momentum thrust to the upside for a possible trade.

SLV Daily Chart

Gold

Gold is also giving us mixed signals, and the SPDR Gold Shares (NYSE: GLD) chart is forming a bullish and bearish pattern. I am currently neutral on gold and not really looking to take part until we get some type of clear price action.

GLD Daily Chart

U.S. Dollar

The U.S. dollar, as evidenced by the PowerShares DB US Dollar Index Bullish Fund (NYSE: UUP) has shown some strength recently. The dollar play has been to take the short side, and a couple weeks ago we saw the dollar break down from yet another consolidation.

It seems like everyone shorted the dollar yet again. That could have been a key pivot low for the dollar. On the weekly chart, that bounce was off a major support trendline, helping add some fuel to the rally I would think.

The chart below shows the recent rally and breakout to the upside. Currently the dollar is pulling back to test the breakout level (support). It will be interesting to see how this week unfolds. If the dollar bounces, then we just may see metals break below their necklines to make another heavy volume drop.

UUP 60-Minute Chart

Precious Metals Trading Conclusion

In short, I have mixed feelings about gold and silver. Yes, I think they are good long-term plays, but after the run they have had it is also very possible a much deeper correction is about to take place, and we may not see new highs for another year. That is a long time to have money sitting in an investment when it can be put to work elsewhere.

I know the herd (general public) is head-over-heels in love with gold and silver, which is one of the reasons why I think we are nearing a top if we didn’t already see it a couple weeks ago.

Now, I am not saying to sell of go short metals — not yet anyways. They are both still in an uptrend, but some interesting things are unfolding that could cause big action in the coming weeks.

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