Briefly: In our opinion speculative short positions (half) are justified from the risk/reward perspective in gold, silver, and mining stocks.
The precious metals sector moved higher yesterday even though the USD Index hasn’t declined. Was that really bullish? Let’s see (charts courtesy of http://stockcharts.com.)
Gold moved higher this week, but it has done so on low volume, which makes the upswing rather bearish. The breakout itself is a bullish phenomenon, but we don’t put much weight to it given that the move higher yesterday materialized on low volume. The price-volume action suggests that the recent move higher is just a counter-trend action and the main trend remains down.
Silver moved significantly higher yesterday, which… Could be viewed as a bearish phenomenon, as precious moves to the 20-day moving average had resulted in nothing more than significant declines.
Mining stocks didn’t move much higher yesterday, which suggests that the move higher wasn’t the true one. The volume during the small rally was rather weak, which – once again - suggests that the move wasn’t really showing the real direction in which the market is heading. It seems that lower prices are to be expected.
On top of the above bearish signs for the precious metals market we get a rather bullish picture for the USD Index. The US dollar moved higher in the past few days and it’s about to take out the important declining resistance line that stopped the previous rally earlier this year. Once it moves above it, we are likely to see a strong upswing, which could translate into a big decline on the precious metals market. It seems quite likely in our view.
Summing up, the outlook for gold, silver, and mining stocks remains bearish, but not extremely bearish, which means that we don’t increase the size of the short position just yet.
To summarize:
Trading capital (our opinion): Short positions (half) in: gold, silver, and mining stocks with the following stop-loss orders:
- Gold: $1,326
- Silver: $20.30
- GDX ETF: $25.20
Long-term capital: No positions.
Insurance capital: Full position.
Please note that a full speculative position doesn’t mean using all of the speculative capital for this trade. You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.
As always, we'll keep you - our subscribers - updated should our views on the market change. We will continue to send out Gold & Silver Trading Alerts on each trading day and we will send additional Alerts whenever appropriate.
The trading position presented above is the netted version of positions based on subjective signals (opinion) from your Editor, and the automated tools (SP Indicators and the upcoming self-similarity-based tool).
As a reminder, Gold & Silver Trading Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent, we will send you an additional small alert before posting the main one.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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