Another Boring Session With No New Signals? Wrong.

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Briefly: In our opinion, small (100% 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.

Gold, silver and mining stocks barely moved during yesterday’s session, but does it mean that the session was boring and without meaning? Boring – yes. Even very boring. But we still saw an important signal.

There is only one chart that we’ll discuss today and we already described the reason in the previous paragraph. Almost nothing changed and everything that we wrote previously remains up-to-date. The only chart that we decided to discuss after reviewing – as we do on a daily basis – more than 100 of them, is the one featuring the GLD ETF (chart courtesy of http://stockcharts.com).

Daily Gold price chart - GLD ETF - SPDR Gold Shares

The boredom and lack of movement was extreme and this serves as a signal on its own. On the above chart, we see that in the form of a very low volume reading.

Why is it significant?

Because the same kind of action was almost always followed by the same thing – rallies. We marked the similar situations with vertical, dashed lines. It’s difficult to say if a rally followed or not, because it’s not clear what should be defined as a rally. Is an intraday upswing enough? Even if it’s followed by a big slide, like what we saw in June? Consequently, we marked these situations using 3 colors. If a short-term rally followed, the line is black, if the rally didn’t follow, the line is red, and if it’s a tough call to say how to call the price action that followed, the line is blue.

In the past year (precisely, in the past 14 months), we saw black lines 13 times, red lines 2 times and blue lines 3 times.

So, out of 18 cases, we saw short-term rallies 13 times (72.2%) and only in 2 cases (11.1%) we saw short-term declines. In other words, in almost 90% of previous cases, a decline didn’t follow immediately.

What does it tell us? It tells us two things. Firstly, a short-term rally is likely to be seen. Secondly a decline is very unlikely to be seen.

The direct implication is that we should stay on course with our long positions while being mentally prepared for closing them once we see confirmations, for instance in the form of soaring silver and lagging mining stocks.

Summing up, the medium-term outlook for the precious metals market didn’t change based on last and this week’s developments and it remains bearish, but the short-term outlook is bullish. The declining volume in gold might indicate that the top is going to be seen relatively soon, but it doesn’t seem that it has been formed yet. Very low volume levels in the GLD ETF were very often followed by short-term upswings, so yesterday’s volume reading serves as a bullish confirmation.

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

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Long positions (100% 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 targets:

Gold: initial target level: $1,279; stop-loss: $1,236; initial target level for the UGLD ETN: $10.58; stop-loss for the UGLD ETN $9.38
Silver: initial target level: $16.48; stop-loss: $15.58; initial target level for the USLV ETN: $11.18; stop-loss for the USLV ETN $8.88
Mining stocks (price levels for the GDX ETF): initial target level: $22.97; stop-loss: $21.08; initial target level for the NUGT ETF: $30.18; stop-loss for the NUGT ETF $23.78

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 exit prices:

GDXJ ETF: initial target level: $33.48; stop-loss: $29.78
JNUG ETF: initial target level: $17.38; stop-loss: $11.78

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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