Gold and Silver’s Long-term Signs

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Briefly: In our opinion, full (150% of the regular full position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.

Once again, gold and – especially – silver moved visibly higher yesterday and so did mining stocks. However, something much more important than the short-term movement is taking place, from the long-term point of view. In today’s alert we examine the details, starting with gold (chart courtesy of http://stockcharts.com).

Long-term Gold price chart - Gold spot price

The important long-term signs are prices moving to long-term resistance lines. In the case of gold, the resistance line is based on the 2012 and 2016 tops. Both of them are very important from the long-term point of view, so the resistance line is also very important. At the moment of writing these words, gold is trading at about $1,287, very close to the resistance line and without a confirmed breakout above it. Its proximity is something that’s likely to trigger a reversal and declines in the following weeks.

Short-term Silver price chart - Silver spot price

The same goes for silver, but with the declining resistance line being even more profound (the declining dashed green line is based on a bigger number of important tops) and an additional red rising resistance line in place. Both lines (and approximately the 50-week moving average) coincide more or less where silver closed yesterday’s session. The combination of long-term resistance levels is something that’s very likely to keep the rally in check – at least in terms of the weekly closing prices.

If you recall, the recent price movement in the USD Index – the latter had closed the week at a very strong weekly support level and we wrote that even if it moved lower on an intra-week basis, it would most likely end the next week higher – and it did. Something like that could be seen in silver, however, based on where gold is, it’s not all that likely.

Speaking of the USD Index, let’s not forget that it’s likely to move considerably higher as it reversed in a profound way last week.

Long-term US Dollar price chart - USD

The precious metals – USD link is not working this week, but that’s very likely due to the tensions regarding North Korea – that’s something that supports the prices of metals regardless of the situation in the currency markets. Still, because the nature of the impact that geopolitical events have on the prices of precious metals is generally short-lived, it seems that gold and silver will resume their downtrend sooner rather than later.

Summing up, it doesn’t seem that we should be concerned with this week’s upswing as the size of the rally is much smaller than what one would expect it to be based on increasing nuclear tensions, plus, the impact of the geopolitical events such as the increased nuclear tensions is very likely to be temporary. Moreover, silver’s short-term outperformance is something that we often see before big declines, so it serves as a bearish / neutral sign, not a bullish one. Finally, both: gold and silver are reaching their long-term resistance lines, which is something that’s likely to trigger a reversal and sizable declines in the following weeks.

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

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Short positions (150% 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 target price levels / profit-take orders:

Gold: initial target price level: $1,063; stop-loss: $1,317; initial target price for the DGLD ETN: $81.88; stop-loss for the DGLD ETN $44.57
Silver: initial target price: $13.12; stop-loss: $19.22; initial target price for the DSLV ETN: $46.18; stop-loss for the DSLV ETN $17.93
Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $26.34; initial target price for the DUST ETF: $143.56; stop-loss for the DUST ETF $21.37

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 initial target prices:

GDXJ ETF: initial target price: $14.13; stop-loss: $45.31
JDST ETF: initial target price: $417.04; stop-loss: $43.12

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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