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Gold and silver have been running hot.
Barely a year ago, gold was trading around $2,700 an ounce. This week, it broke through $4,800 – an 80% move. Silver has done even better. After a sluggish start in 2025, it has more than tripled in value over the same period.
Countless retail investors have jumped into these assets as a result.
Yet you don’t have to trade gold and silver individually to take part in a move. Gold and silver stocks are included in the SPDR S&P Metals and Mining ETF (XME) – an ETF that invests in copper, aluminium, coal, steel, uranium, and other precious metals too…
Many of these assets have also been caught up in the commodities rush.
But like any move, commodities are in danger of overheating when insatiable buying wanes. That could provide the setup for a mean reversion trade to the downside.
So let’s check in on the chart of XME to see how things might play out from here…
XME has experienced a big rally in the last year.
It bottomed out on April 7 after the “Liberation Day” tariffs meltdown. Then XME went on an almighty tear. By its peak in October, it had gained 142%.
But that move pushed XME well into overbought territory.
In the chart below, the peak and reversal at “1” coincided with the Relative Strength Index (RSI) reversing sharply from overbought territory at “A.”
SPDR S&P Metals and Mining ETF (XME)
Source: e-Signal
XME’s reversal at “1” also came off the upper blue line.
Those blue lines in the price chart are Bollinger Bands. They represent two standard deviations of price data (95% of the price action) above and below the orange line, which is a 20-day simple moving average (SMA).
When prices start trading near extremes (blue lines), they become more likely to swing back the other way. That feeds into my mean-reversion strategy. Stocks can stretch too far in one direction and grow susceptible to snapping back the other way – just like a rubber band. I look to exploit these moves for profit.
After its down move, XME twice rebounded off the lower Bollinger Band, including the low at “2.” That came in conjunction with the RSI forming “Vs” (red arrows) and rallying from oversold territory (lower gray dashed line).
From there, XME has rallied sharply, gaining 51% off that November trough in just two months. So, how should we approach any potential trade from here?
XME’s rally off “2” has seen it hug the upper Bollinger Band – a common pattern when a stock is rallying sharply.
Within that move, XME rebounded off the 20-day SMA (orange line), which can act as a mini support and resistance level within a bigger overall move. That’s another pattern to watch out for in your trading.
The chart also shows that the RSI is well into overbought territory (green circle). Take another look:
SPDR S&P Metals and Mining ETF (XME)
Source: e-Signal
That, along with XME tracking along its upper blue line, is not enough to justify a trade by itself. A stock can stay in overbought territory for some time before it pulls back. The same is true for a stock moving along one of the Bollinger Bands.
So we need a clearly defined trigger. In this case, we want to see the RSI definitively reverse before considering a short trade.
And by combining Bollinger Bands and the RSI, we greatly increased our chances of catching a reversal trade.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
