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

Sounds contradictory, but is perfectly true nonetheless. Just like you need to go faster than the car in front of you to be able to overtake it, the price sometimes has to rise faster than a steeply-sloping support level does so that it doesn't break down. Think about keeping your head above water when swimming. So, how has gold fared at this task yesterday? What kind of consequences will that bring in the very near future? Future that some might say is already knocking on the door...

While yesterday's Alert was brief, today's Alert is going to be longer, even though once again not much has happened. Gold is more or less where it's been trading 24 hours ago (at the moment of writing these words) - yes, it's below $1,400 once again.

Even though gold closed half a dollar higher yesterday, this was actually a bearish technical development. That's because of rising support line that we mentioned yesterday. While it's not clear if gold closed below the support line based on the May low and the early June low if we based it on the intraday lows, it is clear that it closed below it when we consider the daily closing prices. We marked this closing-price-based line with red. Gold moved a little higher, but the line was rising faster than fifty cents per day, which resulted in a rather quiet - but still - breakdown.

What's likely to follow a breakdown? A decline. And what has gold been doing in the overnight trading?

It's been declining. Even though it appears insignificant, this move lower is the follow-up of a breakdown in terms of the daily closing prices, which makes it significant. Breakdowns are sometimes immediately followed by volatile declines and sometimes we see a consolidation or a pullback to the previously broken level first. Either of them could take place in gold, but there is a slight indication that volatility is about to increase to the downside...

Silver Is Pointing Its Finger

Silver just managed to close higher, more so than gold did and it's daily rally - although very small in absolute terms - was visibly bigger than the one that we saw in gold. This means that silver just outperformed on a very short-term basis. And if you've been following our analyses for at least some time, you know that this means that a price slide is likely just around the corner. Please take a look at the cases that we marked with yellow on the above chart - silver outperformed right at the top. Of course, in this case the price move is relatively small in general, which is one of the reasons that made us write about only a "slight indication" in the final sentence of the previous paragraph.

Another reason is that it was not only silver that moved more visibly than gold. The same thing happened in the mining stocks.

Making Sense of Miners' Strength

One interpretation is that the mining stocks are showing strength here. Second one is that this is the final part of the topping formation where we see fake strength (similarly to the fake weakness in miners that we saw right before the powerful 2016 rally). It's unclear which of these interpretations is the correct one at this time, so it's better not to focus on this factor until it becomes clearer. In the bullish case, the above could take the form of a breakout above the previous highs, confirming that breakout. This is unlikely. Please note that in October 2018, when miners also formed the island top, miners moved practically right to the previous high before sliding in a volatile manner. It's not uncommon for miners to "act tough" until the end. But when they give up, they drop hard.

We received a question from one of our subscribers about the nature of the "ongoing strength in senior gold stocks". In particular, the question was if it was a matter of good news in individual miners, or something more fundamental.

In our view, it's neither. Gold mining stocks are moving higher as they virtually have to as the price of the product that they are selling is going up and moving above previous years' highs.

As much as we don't like to reply to a question with a question, this seems justified here. And our question is:

What strength?

Even taken together, this and last years' rally in the gold miners is very small to compare to the 2016 upswing, let alone to the enormous 2011 - 2016 decline. It's just a relatively small correction within a much bigger downtrend. By being bearish here, we are not against the major trend - we are in tune with it.

Some may say that the HUI Index broke above the very long-term declining resistance line based on the 2011 and 2012 tops, which makes the outlook bullish. However, they forget that the same thing happened at the very top that we saw in 2016. And they forget that given where gold is right now (above its 2016 high) the size of the recent upswing in the miners is very weak.

The current move is much more similar to the 2014 or 2015 corrective upswings than it is to the 2016 rally or to the beginning of the 2000s bull market. And what followed the 2014 and 2015 corrections? Big slides during which miners didn't look back until they reached new lows.

The more fundamental thing about all this that was mentioned in the question is that the miners are suggesting that this is not the beginning of a new powerful upswing that would take gold much higher eventually. It strongly indicates that we will need to see a bigger price decline first.

Summary

Summing up, gold closed 50 cents above $1,400, but it was actually a bearish development as it means that gold just broke below its rising short-term support line based on the daily closing prices. Moreover, it did so after once again failing to break above the mid-2013 high, and shortly after silver broke below its own rising support line, which means that the overall outlook for the precious metals market deteriorated. The above happened after multiple long-term signs pointing to lower prices in the following months, i.a. the clear huge-volume-confirmed bearish shooting star candlestick in gold, huge volume topping signs from both: gold and silver, the triangle-vertex-based reversals, and epic volume from silver stocks. The next big move in the precious metals sector is most likely going to be down, not up.

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: $1,452; initial target price for the DGLD ETN: $51.87; stop-loss for the DGLD ETN $31.67
• Silver: profit-take exit price: $13.81; stop-loss: $16.32; initial target price for the DSLV ETN: $39.38; stop-loss for the DSLV ETN $23.87
• Mining stocks (price levels for the GDX ETF): profit-take exit price: $17.61; stop-loss: $26.47; initial target price for the DUST ETF: $34.28; stop-loss for the DUST ETF $9.87

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: $24.71; stop-loss: $37.17
• JDST ETF: profit-take exit price: $78.21 stop-loss: $22.47

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.

=====

Latest Free Trading Alerts:

A new day, a new opportunity to cash some nice profits. It's hard to choose where to look first - our situation is that favorable. Time to examine the charts, and decide where to lock in some profits, and where to let them run. Let's dive in to the details. They are rich indeed.

Just Where Should We Cash Some Profits in the Currencies?

=====

Thank you.

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