Briefly: in our opinion, full (300% of the regular position size) speculative short positions in mining stocks are justified from the risk/reward point of view at the moment of publishing this Alert.

Gold futures tried to move to new highs yesterday and the GLD ETF really managed to move to new 2020 highs. Gold stocks failed to close at new June highs, though, let alone break to new yearly highs. Silver was almost unaffected as it simply reversed and closed merely 6 cents higher.

Consequently, while yesterday's move higher in gold seems encouraging, let's keep in mind that it's only gold that is showing strength right now. The rest of the PM sector is following, but very reluctantly so. This means that gold's move is likely unsustainable. Besides, for gold to top, it has to rally first, right? If gold's long-term turning point is here and it's a major top, then gold had to rally first in order to top. After all, market can't top after a decline.

At this point, one might ask if this rally invalidates the March - now similarity that we described in the last several Alerts. In short, it doesn't, but it changes the way this similarity seems to be working. We adjusted the similar periods on the chart below.

In case of silver and mining stocks, nothing really changed except for the extra two weeks by which the current part of the self-similar pattern was enlarged. There was no move to new highs.

In case of gold, however, we saw a move visibly above the previous June high, and also above the late-May low, which means that what we see right now, is still similar to what we saw in February and March, but it's now more aligned with what we see in silver and mining stocks. The moves are now simply taking more time than they did back then.

The general stock market is consolidating below the rising resistance line after confirming the breakdown. The implications are bearish for the following weeks.

The USD Index moved to the rising support line without breaking it. The USDX moved below this line in today's pre-market trading, but the move is far from being confirmed. There was not even a single daily close below it. Also, gold didn't respond to USD's move below yesterday's lows, by moving to new highs, which suggests that gold already did what it "wanted to do".

And as for why gold is taking more time after all...

There's a good reason for it - when the Covid-19 threat was new, people simply panicked due to the unknown. Now the threat is known, but the follow-up could be much worse than it was previously. The new U.S. daily Covid-19 cases are practically as high (on average) as they were when these numbers topped previously, but the States are not going back into quarantine.

Therefore, the numbers are likely to climb even more, and with no proven (!) and widely accepted cure, they are very likely to move to new highs and exceed the previous highs to a great extent. And we probably won't have to wait for that for too long either. Please keep in mind how fast the numbers grew in March.

Source: http://tracktherecovery.org

Remember how the spending plunged in March when people got really concerned with the health risks and the economic implications? That's when the markets really moved. We are not seeing this effect just yet, but given how the Covid-19 numbers are growing and how the virus spreads both in general and right now, it's certain that things will get worse in the following weeks.

Let's keep in mind that PMs plunged at the very early stage of the move in many markets.

Speaking of many markets, we would like to bring your attention to what's just happening in crude oil. We discuss the developments on this market on a daily basis in our Oil Trading Alerts, but at this time, it seems that what's going on in it, is also important from the PM investors' and traders' point of view, so we'll include crude oil's brief analysis also below.

The thing is that the black gold's price is right at the upper border of the March price gap. That's one of the most important resistance levels nearby. There's also the 61.8% Fibonacci retracement level, but since it's based on the April low that is relatively unclear (different series of futures contracts were trading at very different price levels, some were even in the negative territory), the Fibonacci retracement might not be as reliable as it the price gap.

This means that the resistance level that is being tested right now, is of critical importance. Please note how aligned is the price of crude oil with the previous spending chart - and with the prices of stocks themselves.

Just several months ago, crude oil was one of the weakest markets out there and its rebound was one of the strongest. The reversal in black gold and a decisive decline could be the thing that tips the scale for all markets.

Consequently, while a trigger is not necessary for the market to move in a given direction, getting one could speed things up. And it seems that crude oil's reversal could be the trigger, along with a comeback of the USD Index.

When based on the daily closing prices, the resistance created by the upper border of the March price gap is at $41.28, and at the moment of writing these words, crude oil paused 14 cents above this level. This by no means implies that the resistance is broken. If we see a daily close above $41.28, it could have bullish implications, but it doesn't have them right now.

"Could", because if we look at crude oil's 4-hour chart, we'll get a slightly different picture.

In this case, the upper border of the huge March price gap is at $41.61, which means that crude oil is actually slightly below it, not above it. The intraday high (so far) was $41.55, which means that this resistance was not touched on an intraday basis.

Summary

Summing up, the outlook for the precious metals market is extremely bearish for the next 1-3 weeks due to the huge number of bearish signs (and their strength) that we have right now, and how likely PMs are to repeat their March slide to a significant extent). The sharply rising new Covid-19 cases numbers as well as gold's long-term cyclical turning point both suggest that gold's one final slide is just around the corner.

Crude oil reaching its resistance could be the tipping point not just for that market, but for many other markets - after all, the oil price decline heralded the same move for other markets also in March and pandemic-wise the situation is now very similar.

After the sell-off (that takes gold below $1,400), we expect the precious metals to rally significantly. The final decline might take as little as 1-3 weeks, so it's important to stay alert to any changes. In particular, please note that there might be a time to move from mining stocks to silver as the latter tends to catch up in the final part of a given move - also during declines.

Most importantly - stay healthy and safe. We made a lot of money on the March decline and the subsequent rebound (its initial part) price moves (and we'll likely make much more in the following weeks and months), but you have to be healthy to really enjoy the results.

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

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full speculative short positions (300% of the full position) in mining stocks is justified from the risk to reward point of view with the following binding exit profit-take price levels:

Senior mining stocks (price levels for the GDX ETF): binding profit-take exit price: $10.32; stop-loss: none (the volatility is too big to justify a SL order in case of this particular trade); binding profit-take level for the DUST ETF: $231.75; stop-loss for the DUST ETF: none (the volatility is too big to justify a SL order in case of this particular trade)

Junior mining stocks (price levels for the GDXJ ETF): binding profit-take exit price: $9.57; stop-loss: none (the volatility is too big to justify a SL order in case of this particular trade); binding profit-take level for the JDST ETF: $284.25; stop-loss for the JDST ETF: none (the volatility is too big to justify a SL order in case of this particular trade)

For-your-information targets (our opinion; we continue to think that mining stocks are the preferred way of taking advantage of the upcoming price move, but if for whatever reason one wants / has to use silver or gold for this trade, we are providing the details anyway. In our view, silver has greater potential than gold does):

Silver futures downside profit-take exit price: $8.58 (the downside potential for silver is significant, but likely not as big as the one in the mining stocks)

Gold futures downside profit-take exit price: $1,382 (the target for gold is least clear; it might drop to even $1,170 or so; the downside potential for gold is significant, but likely not as big as the one in the mining stocks or silver)

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.

Thank you.

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