Briefly: in our opinion, full (250% of the regular size of the position) speculative short position in gold, silver, and mining stocks is justified from the risk/reward perspective at the moment of publishing this Alert.

Nothing has really happened in the precious metals market and yet, this nothing has been surprisingly informative. Why? As always, it's a matter of context. And this time, something very important took place behind the curtains. Gold and silver investors would be ill-advised to miss that. It is...

... the fact that the USD Index moved lower and closed the day below the previous highs.

The Sign from the USD Index

This is a classic example of an invalidation of a breakout. Even in the invalidation, this attempt is different than the previous ones, as the USD didn't slide below 97. Let's consider the changes. The short-term outlook for the USD Index deteriorated (and we profitably closed our long positions in the EUR/USD pair), but perhaps the rising red support line will be able to help the USD rally once again. The most important change is the reaction of the precious metals market. It didn't rally. Yes, PMs moved a bit higher, but the move was so small that it can be viewed as a pause instead of a rally.

In fact, at the moment of writing these words, gold is already back below Monday's closing price, even though the USD Index has barely moved.

Gold and Silver's Response

This means that while the outlook for the USD Index may be unclear for the very near term, the outlook for the precious metals sector is crystal clear. Gold, silver, and mining stocks simply can't wait to decline once again.

The size of yesterday's upswing is negligible. It didn't change anything, and the very bearish implications of the head-and-shoulders formation remain in place.

The price action in silver was more interesting. The white metal made another attempt to move higher and it even managed to close a bit above Monday's low, but at the moment of writing these words, silver is already back below both daily closes.

Silver already took an intraday dive, and if it wasn't for USD Index's decline, gold's sister metal would probably have plunged much deeper.

The current situation is quite similar to what we saw in late July and early August 2018. Silver is already after the local top, but it keeps on moving back and forth, getting ready for the slide. And when it does slide, it's likely to be very volatile - just like what we saw in August.

Before you ask - the USD Index's rally might be the trigger for the decline, but actually no trigger is required. The trigger might speed things up, but if one is absent, PMs and miners will likely decline anyway, only a bit later. The "bit later" means several days later, not months. It might mean weeks, if something bullish surprises the markets, though. Yesterday's reaction to USD's decline shows that it would need to be a huge surprise and we don't expect to see one shortly.

Gold Stocks and Gold Revisited

The move higher in the gold stocks was even smaller than the one in gold, which further confirms the bearish implications that the gold stocks - gold link has.

In yesterday's Alert, we wrote that gold is likely to end April with volume lower than what we saw in March. Now we see that it was indeed the case. This further validates the 2012-2013 - now link as we explained yesterday:

Gold's monthly chart shows that the decline is progressing as expected. This is the third month of the medium-term slide, so it's no wonder that gold doesn't decline faster. If you take a closer look at the third month of the previous decline (December 2012), you'll see that it was when gold declined on a temporary basis only to move back up before the month was over. This move lower is what we might see this week. Unless it happens today, it will already be a part of May, but it doesn't change much. With long-term analogies, a weekly or bi-weekly deviation from the otherwise near-perfect link is nothing to worry about. After all, the history is not likely to completely repeat itself, but rather to rhyme.

One more thing that we would like to add here is a note on the volume levels. In relative terms, they continue to be remarkably similar to what we saw in 2012. We discussed it a few months ago, but the similarity continued thereafter. The red "inverse checkmarks" that we drew on the lower part of the above chart illustrate what we already covered. What followed was a monthly decline on relatively low volume, then a decline on relatively high volume and then once again a decline on relatively low volume. Of course, April is not yet over, and one session's volume will need to be added, but it's not likely to change much. Unless we see something really profound today, April's volume will not exceed the March volume. Consequently, the link between now and the 2012-2013 decline continues to be confirmed in the increasing number of factors.

The above remains up-to-date. We are still likely to see a bigger decline this week.

Before summarizing, there's one more thing that we would like to add about gold stocks' long-term chart.

That interesting detail about this chart is the pace at which miners moved higher between September 2018 and February 2019. It seems quite normal at first sight, but there's something wrong about it - at least if one expects it to be the start of a bigger medium-term upswing.

All (and by all, we really mean that) big upswings in the HUI Index started with a sharp upswing. Which is exactly what we didn't see in the recent months.

The 2000 bottom, the 2002 bottom, the 2005 bottom, the 2008 bottom, and the 2016 bottom - they all started in a volatile manner. The recent upswing was nothing like that. It was relatively slow. Consequently, it's quite unlikely that it was the start of a huge upswing. And if it wasn't, when what else can it be? A correction within a bigger downtrend.

Based on the sizes of other corrections (marked with purple), this correction is over, and the market will now return to the previous trend. This means another big wave down.

Summary

Summing up, there are multiple short-term and medium-term signs pointing to a powerful slide in the precious metals market in the following months, weeks, and - quite likely - days. There will likely come a time later this year when we will get in the back-up-the-truck territory with regard to precious metals, but we are not even close to these discounted price levels. However, it looks like the final slide towards them has already started. Based on the likelihood of seeing a temporary turnaround this week, we might have a good chance of exiting the current short position or even switching to a long one at that time.

As always, we'll keep you - our subscribers - informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full short position (250% of the full position) in gold, silver, and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and exit profit-take price levels:

• Gold: profit-take exit price: $1,241; stop-loss: $1,357; initial target price for the DGLD ETN: $51.87; stop-loss for the DGLD ETN $39.87
• Silver: profit-take exit price: $14.03; stop-loss: $15.72; initial target price for the DSLV ETN: $37.47; stop-loss for the DSLV ETN $26.97
• Mining stocks (price levels for the GDX ETF): profit-take exit price: $18.41; stop-loss: $24.17; initial target price for the DUST ETF: $34.28; stop-loss for the DUST ETF $15.47

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 target prices:

• GDXJ ETF: profit-take exit price: $26.42; stop-loss: $35.67
• JDST ETF: profit-take exit price: $78.21 stop-loss: $30.97

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

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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We've raised some doubts about the bulls' power to succeed yesterday. Indeed, they gave up most of their gains before the closing bell. Today, we haven't seen even an upswing attempt that would fizzle out. So, is it a case closed? Given all the breaking oil news and data, what do the charts really reveal about oil going forward?

Is That the Oil Bulls' Fate That's Hanging in the Balance?

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Thank you.

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