This is just a quick note to clarify our current take on the precious metals market. It seems that such a clarification would be useful today as we received quite a few messages asking us to explain if we believe short positions are currently justified or not. We apologize for any confusion and inconvenience this may have caused.

In short, we believe that the short positions in the precious metals sector remain justified from the risk to reward perspective. Nothing changed in that regard.

What changed are the stop-loss levels for the existing short positions. We moved the stop-loss levels for the existing short position lower. Nothing else was changed.

The reason for this change is that based on yesterday’s price action it seems that IF (!!!) we see a corrective upswing, it could be more volatile than we thought previously. This observation doesn’t make the move more likely. Again - IF. IF gold manages to break visibly above $1,100 (and we think that a move to $1,103 is enough to see this move as “visible”), then it would become more likely that the rally would take gold even higher - perhaps even to $1,140 or so. Based on multiple bearish signs it continues to be more likely that the decline will continue and the profits on the current short position will increase. The change in the stop-loss level reflects our “what-if-the-unlikely-happens plan of action”.

Once again, unless gold moves above $1,103, we will continue to believe that the short positions remain justified from the risk/reward point of view - and this is the case right now.

Since the session is about to be over, we can provide you with a quick update before the weekend. Miners didn’t decline today and it seems that it reflects the general uncertainty regarding the precious metals market. Gold moved just a little lower and so did silver, which might not seem significant, but it actually is. More precisely, the fact that gold and silver didn’t rally is significant, because it’s now very likely that both metals will break below the previous 2015 lows in terms of the weekly closing prices (miners are not far from doing the same thing either). Gold might even close below the previous low in terms of daily closing prices. All in all, the situation on the precious metals market seems to have once again deteriorated based on today’s session - we’ll know more after the markets close. We’ll comment on that in greater detail in Monday’s alert.

As always, we’ll keep you - our subscribers - updated.

To summarize:

Trading capital (our opinion): Short position (full) position in gold, silver and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and initial (! – this means that reaching them doesn’t automatically close the position) target prices:

• Gold: initial target price: $1,050; stop-loss: $1,103, initial target price for the DGLD ETN: $98.37; stop loss for the DGLD ETN $85.51
• Silver: initial target price: $12.60; stop-loss: $14.73, initial target price for the DSLV ETN: $96.67; stop loss for DSLV ETN $61.00
• Mining stocks (price levels for the GDX ETF): initial target price: $11.57; stop-loss: $14.23, initial target price for the DUST ETF: $26.61; stop loss for the DUST ETF $17.55

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: $16.27; stop-loss: $20.03
• JDST ETF: initial target price: $46.47; stop-loss: $29.71

Long-term capital (our opinion): No positions

Insurance capital (our opinion): Full position

Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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