Briefly: In our opinion, full (150% of the regular size of the position) speculative long positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.

We opened a long position only a few days ago and mining stocks have already moved very close to our initial target price. Is it high time to prepare for exiting these positions and perhaps reversing them?

No, it seems to early to do so. Based on the strength in mining stocks, we are moving the target area higher. Even if the miners to gold ratio stops rallying, mining stocks will still be likely to move considerably higher if gold moves to the target area of $1,345 - $1,353.

Let’s take a look at the charts for details, starting with gold (charts courtesy of http://stockcharts.com).

Metals’ Intraday Reversals

In yesterday’s alert we argued that the very early reversals that might have seemed bearish, were actually normal in the early part of the short-term rally as that’s what we had seen multiple times in the past in gold, silver and mining stocks. You can see the similar sessions on the above charts – we marked them with black ellipses. Most short-term bottoms in the case of gold and the key ones in the case of silver were followed by this kind of price action, so there was no reason to view them as bearish.

However, we saw additional daily upswings and also additional daily reversals also yesterday. Should one be concerned with two seemingly bearish reversals in a row?

Our reply and its justification are just like they were yesterday. It’s not a concern, because that’s also what we saw previously. Almost all areas that are marked with black ellipses in gold and silver include more than one daily reversal and visible intraday volatility right after the bottom. It’s not bullish, but rather normal.

Besides, the volume during yesterday’s “reversals” was relatively small (smaller than during previous days) and true reversals should be confirmed by big volume. The volume that we saw, suggests that what we saw was not a real reversal, but a daily pause. In other words, it was not bearish.

It’s still likely that gold will top before the middle of the month and the upside target area is still $1,345 - $1,353. The analogous price target area for silver is $16.90 - $17.

Gold Stocks’ Intraday Reversal

We previously wrote about $23.30 being the likely upside target for GDX, but based on the strength that we saw recently, it seems that the miners will move higher than that. To be clear, it’s still possible that they will start underperforming gold and top close to $23.30, but it seems more likely that it will take longer before the underperformance starts and thus a higher target price seems more likely.

The strongest of the possible (technically there’s no limit to the upside, but let’s be realistic) upside targets in the short term is the previous 2018 high just below $25. However, expecting this kind of rally would only make sense if we assumed that the upswing in the miners to gold ratio accelerated. It’s not reasonable to expect that, as miners usually start to underperform before a top is reached, so we’ll probably see weaker mining stocks in the final part of the rally. Consequently, the previous 2018 high seems to be too high for this rally.

The only other resistance levels that we have on the above chart are the last month’s high (which we already discussed above) and the upper border of the rising trend channel (which will be at about $23.9 in a week).

Consequently, it seems that the GDX will form the next local top in about a week (based on the True Seasonal patterns and the apex-based turning points that we described earlier this week) in the $23.30 - $23.90 area.

USD Index at Key Short-term Retracement

As far as the USD Index is concerned, nothing really changed regarding the outlook. The USD Index made another attempt to move above the 61.8% Fibonacci retracement and failed once again. This is a repeat of the previous bearish signal and our comments on it remain up-to-date:

Namely, the 61.8% Fibonacci retracement level was clearly reached yesterday, not only approximately.

Moreover, we saw a move to new 2018 high in terms of both: intraday prices and daily closing prices. This may seem bullish, but the USD Index is already moving lower in today’s pre-market trading and the above has already been invalidated. The implications are therefore bearish, not bullish for the short term.

Moreover, please note that the recent upswing in the USDX was very steep and there is a clear rising support line that has held for days. It’s extremely recognizable, so a breakdown below it will likely be noticed by all traders and would be something that could trigger a more visible move. The most bullish thing for the PMs about this line is that… It hasn’t been broken yet and metals and miners rallied anyway. This kind of performance makes subsequent rallies in PMs very likely. Only for another week or so, though.

Before summarizing, we would like to address a few questions that we received recently.

Gold and USD Rallying Together

Just a quick note to say thanks for all your analysis at the moment. (…) I like your analysis because I am looking to close out all my positions when the time is right due to my age. (…) I wrote a number of years ago about gold rising alongside the dollar which has happened in the past. Do you see any possibility of that happening again?

Yes, it’s quite possible that this will happen – not only on a daily basis. It could be the case that the USD Index’s rally will be very significant and that it will take longer for the USD to finish its rally than it will take gold to finish its decline. We saw a small sample of this kind of behavior in the past several days. The USD is not yet declining, but gold, silver and mining stocks are already rallying. This could be seen also in macro terms. The USD could rally for weeks and gold would decline too fast and need to rally back up regardless of what the USD does.

We might see something like that in the final quarter of this year (it’s not very likely, but it’s certainly possible).

In a few years, when the precious metals sector enters the final part of its long-term uptrend and goes up in a parabolic fashion, we think that it will move higher almost regardless of what happens in the USD Index. Remember how silver soared in 2010 and 2011 without a bigger change in silver’s fundamental picture? Something similar could take place in the entire precious metals sector right before the final top. Again, that’s probably several years away.

Gold’s Very Long-term Bear Market

We were also asked to comment on the long-term bearish prediction by Wells Fargo. There were no specific reasons given for the decline to take as long, so we can only say that we respectfully disagree. We think that it’s much more likely that gold will move much lower due to emotional, not fundamental reasons and when enough people hate the yellow metal, the new powerful long-term rally will start. That’s how markets work – moving from the stage of fear to euphoria and vice-versa. We had euphoria in 2011 and we didn’t have extreme fear or hate toward gold in the late 2015. It seems likely that we’ll see the extreme bottom later this year and we expect the precious metals market to rally strongly thereafter.

One specific thing that we can say that we disagree with is that gold production is a major factor for even the medium-term price moves. Gold should be priced as a currency and not as a commodity and we provided details in the previous analyses. Gold supply is often analyzed because… Well, it’s easy to analyze it. It doesn’t mean that it’s particularly important, though. You’ll find more on why gold should be treated as a currency in this article, and you can read about the implications of the above over here.

Let’s move on to the final question.

Alternatives to Leveraged ETFs

As a Dutchman and citizen of EUROPE it is NOT ANYMORE possible to buy of sell ETF’s like JDST, DUST, JNUG or NUGT.

We face that problem since some days and in fact concerns ALL European citizens. I’m shocked about it and I don’t know how further!!!

At the moment I miss a lot of money because of this law!

Can you give me advice?

Well, we can’t provide investment advice, especially to specific investors and especially about specific financial instruments. We can only give general opinions. We’ll strive to help through these general opinions and ideas that are not dedicated to any specific investor and are not investment advice.

First of all, we don’t have experience with the specific legal regulations, so we can’t say with 100% certainty that any of the below ideas will be applicable – we’re providing them as something that you might want to discuss with your investment advisor and/or accountant and/or lawyer.

Having said that, we see two possible workarounds that might be legal (you’ll need to verify that) and useful.

Perhaps you can trade futures? That would provide the leverage that one might be seeking. We can’t recommend them or any other specific proxy as that would be investment advice, but in general futures are a very useful tool for more advanced traders. The fee burden also tends to be much smaller than in the case of leveraged ETFs.

Futures might be a good workaround for gold and silver ETFs (especially the leveraged ones). Just like all leveraged instruments, futures are risky and the difficulty here is to make sure that one keeps the position size reasonable (people tend to put too much in a single trade – please see the simulation in the second part of this page for details – you may have an A-HA! moment there).

A broker that we know and with whom we’ve been working with and that you can contact regarding futures is Herb Kral from SRB Capital Management, Inc.:

Herb Kral
Director
SRB Capital Management, Inc.
Managed Futures, Clearing & Execution
190 S. LaSalle St.  Suite 3000
Chicago, IL 60603
www.srbcapital.com

312-676-1044 office
630-841-3152 mobile
312-676-1009 fax

As far as mining stock ETFs are concerned, the idea would be to create a portfolio of gold and silver stocks that mimics the ETF that one was trying to buy. The holdings of a given ETF are usually publicly available along with portfolio weights, so it shouldn’t be too difficult to recreate a similar portfolio.

In fact, it might be even better to use individual stocks as that’s what would allow to benefit from the stock selection tools that we provide: Golden StockPicker and Silver StockPicker.

Finally, there is a service that one might want to consider that we provide outside of the regular newsletter arrangement. It’s managed futures trading - the trading is done automatically on one’s futures account. As soon as possible, Herb enters orders based on the alerts that I send and according to our position sizing rules. The capital stays in one’s account at all times and we don’t have access to it - we can only provide signals that make Herb enter or exit trades.

If one doesn’t have a lot of time to manage their trades, then the above might be really useful. If that’s something that you’re interested in, please contact Herb (contact details as above) for details.

Summary

Summing up, yesterday’s intraday volatility may appear bearish at first sight, but in reality, it’s normal in the early parts of short-term rallies in gold, silver and mining stocks – just like Wednesday’s reversals. The situation in the USD Index and the Euro Index suggests that we’re seeing the beginning of a corrective downswing and the opposite seems to be in store for the precious metals market. The important thing is that this is most likely not a new medium-term upswing, but rather a short-term, two-week-long move (there’s one week left). Our long position became profitable almost immediately and it might be tempting to cash in the profits, but this doesn’t seem justified from the risk to reward point of view as the outlook didn’t deteriorate – it’s likely that our profits will increase further before the rally is over.

As indicated earlier, we are moving our initial target prices higher for mining stocks.

As always, we will keep you – our subscribers – informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full long positions (150% of the full position) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and initial target price levels:

• Gold: initial target price: $1,338; stop-loss: $1,272; initial target price for the UGLD ETN: $11.68; stop-loss for the UGLD ETN $9.88
• Silver: initial target price: $16.86; stop-loss: $15.49; initial target price for the USLV ETN: $10.68; stop-loss for the USLV ETN $7.88
• Mining stocks (price levels for the GDX ETF): initial target price: $23.78; stop-loss: $21.47; initial target price for the NUGT ETF: $29.78; stop-loss for the NUGT ETF $22.88

In case one wants to bet on junior mining stocks' prices (we do not suggest doing so – we think senior mining stocks are more predictable in the case of short-term trades – if one wants to do it anyway, we provide the details), here are the stop-loss details and initial target prices:

• GDXJ ETF: initial target price: $34.78; stop-loss: $31.38
• JNUG ETF: initial target price: $16.88 stop-loss: $11.88

The stop-loss levels are quite far from the current price, but please note that the aim of the stop-loss is to take the investor off the market if the price move by its own is so meaningful that it changes the outlook. Naturally, if things go against us, we will aim to get out of the market much sooner – for instance based on signals from volume or other tools.

Long-term capital (core part of the portfolio; our opinion): No positions (in other words: cash)

Insurance capital (core part of the portfolio; our opinion): Full position

Important Details for New Subscribers

Whether you already subscribed or not, we encourage you to find out how to make the most of our alerts and read our replies to the most common alert-and-gold-trading-related-questions.

Please note that the in the trading section we describe the situation for the day that the alert is posted. In other words, it we are writing about a speculative position, it means that it is up-to-date on the day it was posted. We are also featuring the initial target prices, so that you can decide whether keeping a position on a given day is something that is in tune with your approach (some moves are too small for medium-term traders and some might appear too big for day-traders).

Plus, you might want to read why our stop-loss orders are usually relatively far from the current price.

Please note that a full position doesn’t mean using all of the capital for a given trade. You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.

As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.

Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main markets that we provide these levels for (gold, silver and mining stocks – the GDX ETF), the stop-loss levels and target prices for other ETNs and ETF (among other: UGLD, DGLD, USLV, DSLV, NUGT, DUST, JNUG, JDST) are provided as supplementary, and not as “final”. This means that if a stop-loss or a target level is reached for any of the “additional instruments” (DGLD for instance), but not for the “main instrument” (gold in this case), we will view positions in both gold and DGLD as still open and the stop-loss for DGLD would have to be moved lower. On the other hand, if gold moves to a stop-loss level but DGLD doesn’t, then we will view both positions (in gold and DGLD) as closed. In other words, since it’s not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can’t provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the signs pointing to closing a given position or keeping it open. We might adjust the levels in the “additional instruments” without adjusting the levels in the “main instruments”, which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets. We are already working on a tool that would update these levels on a daily basis for the most popular ETFs, ETNs and individual mining stocks.

Our preferred ways to invest in and to trade gold along with the reasoning can be found in the how to buy gold section. Additionally, our preferred ETFs and ETNs can be found in our Gold & Silver ETF Ranking.

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.

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Hand-picked precious-metals-related links:

Gold prices steady ahead of U.S. payrolls data

Asia Gold-Weaker prices fail to revive demand; Indian premiums widen

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In other news:

Ukraine to deploy US anti-tank missiles in defiance of Russia

US reportedly lays down a list of trade demands to China

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Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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