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.

Seems contradictory, yet it's so true. Just like the Sir Arthur Conan Doyle's classic Silver Blaze: the story about the dog that didn't bark. As for precious metals, this signifies that we have already seen this kind of action already. Just when exactly have we met this deja vu experience? Let's take a look and find the answer together.

Today's Alert is going to be relatively short, as virtually nothing changed in gold, silver and mining stocks yesterday.

More of the Same Across the PMs Sector

Mining stocks did almost nothing.

Silver corrected the preceding day's slide, by moving back to its previous lows. It didn't move above them, so it verified them as resistance. This kind of performance is normal - for instance we saw this kind of a daily pause in the first half of the big August 2018 decline.

Gold seems to have moved and close visibly higher, but that was not really the case. Neither the finance.yahoo.com data, nor the intraday prices from kitco.com confirm it.

At the moment of writing these words, gold is trading very close to its Tuesday's lows. Whatever gain Stockcharts' chart might have indicated, it's gone. The outlook remains bearish.

The only really notable change took place in the USD Index.

USD Index Is Peeking Higher

The U.S. currency didn't move to new yearly highs in intraday terms, but it did so in terms of closing prices. This is an important bullish development. The breakout is not confirmed yet and very few people seem to believe it, which is most likely why the precious metals market didn't react yet. There were so many attempts to break above the current levels that it will likely take a profound move higher for other markets to catch up and really react.

And you know what? We might actually see this kind of big upswing in the USD shortly. For many weeks (and months) the USD Index has been forming higher lows, increasing the pressure for a breakout. Almost every time when USD was about to break higher, some news popped up and made it decline instead. However, the USD recovered each time and came back a little stronger. It seems that it's already at the situation where no trigger is necessary for it to move higher as there's so much technical pressure built up through the previous months.

Once USDX breaks higher, it's likely to move far. The longer the base, the stronger the move, is one of the useful technical sayings. And the base - the corrective period - took almost a year.

The implications for the precious metals market are very bearish.

Summary

Summing up, yesterday's price action didn't really change anything on the precious metals market and the move higher in the USDX suggests that a big move in both: USD and PMs is likely just around the. The next reversal is likely to take place close to or at the turn of the month. This means that we are likely to see either a volatile move lower this week, or the start of the next sizable downswing might be delayed until the next week and start in early June. In other words, gold might reach our interim target level of $1,240 shortly and thus we might adjust our trading position also relatively soon.

Also, if you've been wondering if it's a good idea to simply buy gold and hold it for the next 10-15 years while using it for everyday expenses, we encourage you to read our article on this topic. It's a pointed reply to a question about such a strategy that we have received recently - this topic is too important to give it just a passing glance.

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: $13.81; stop-loss: $15.72; initial target price for the DSLV ETN: $39.38; stop-loss for the DSLV ETN $26.97
• Mining stocks (price levels for the GDX ETF): profit-take exit price: $17.61; 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: $24.71; 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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Thank you.

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