Based on today’s intra-day action, we think that the speculative long positions in gold, silver and mining stocks are no longer justified from the risk to reward point of view. Consequently, we think that closing these positions and taking profits off the table (GDX is currently about $1 above the price at which we entered long positions earlier this month) is a good idea now.

Why? The less important reason is that the short-term outlook for the USD Index became less clear - USD is after a breakout above the July high and also after a breakout above the March high. It could now rally up to 100 or so without another major decline. The most important thing about the situation in the USD Index is that the short-term decline became much less probable (it was highly probable and now is only somewhat probable).

The more important reason is that until today, the above didn’t seem to have important implications on PMs as metals and miners continued to show strength even in light of USD’s rally AND there were no meaningful bearish signs for the short term. Today we saw the latter. Mining stocks are underperforming gold to a sizable extent (even despite a move higher in the main stock indices) and silver outperformed on a very short-term basis. The white metal rallied just before the markets opened in the US only to erase the rally shortly after the opening bell.

The above kind of relative performance (underperformance of miners along with quick outperformance of silver) is what we tend to see right at local tops in precious metals.

In light of the good possibility that the USD Index will in fact decline, we don’t think that opening short positions is justified from the risk to reward point of view at this time, but we think the above is enough to view the long positions as no longer justified.

Did the outlook change since we opened the position? Yes. Would we re-open the position right now, if we didn’t have any? No, at this time the outlook is too unclear. Thus we are closing the positions and taking profits off the table. The above is up-to-date regardless of whether the position is profitable or not (if we had opened the position yesterday and it was at a loss today, we would still view it as not justified and we would think that it’s a good idea to close it). Naturally, since we had opened it on October 11, it is indeed profitable, but if it wasn’t, our decision regarding closing it, would be the same.

We will probably see some other signs shortly and as always - we’ll keep you - our subscribers - informed.

Thank you.

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

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