Gold & Silver Trading Alert: Bearish Sign from Miners

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Briefly: In our opinion, a speculative short position (half) in gold, silver and mining stocks is justified from the risk/reward point of view.

The precious metals declined yesterday but the move lower was not the same in all parts of the sector. Gold declined on low volume (correction?) but mining stocks declined on volume that was higher than what we had seen during the previous day’s upswing. What’s next?

Let’s take a look at the charts (charts courtesy of http://stockcharts.com).

Short-term Gold price chart - Gold spot price

Gold declined on relatively low volume, but the low-volume days in gold were followed by declines quite often even when gold moved lower during these low-volume sessions. Consequently, the implications here are not really bullish – they are neutral or slightly bearish.

What about mining stocks?

GDX - Market Vectors Gold Miners - Gold mining stocks

Miners usually follow the traditional interpretation of the price/volume signs. In this case, the increased volume during a downswing (even though it has only been slightly higher) has bearish implications. The fact that the GDX ETF reached the declining resistance line on Monday makes the bearish scenario more likely.

Given the neutral to bearish signs from gold and bearish from mining stocks, the net effect is bearish. The situation in silver confirms the above.

Long-term Silver price chart - Silver spot price

Silver recently moved once again to the declining red dashed resistance line and declined shortly thereafter. The most recent move higher seems to have been yet another correction within a downtrend. Taking the proximity of the above-mentioned resistance line into account, silver is currently similarly likely to decline as it was at the beginning of this year. The outlook remains bearish.

Summing up, our yesterday’s comments remain up-to-date and the outlook for the precious metals market remains bearish for the medium and short term.

We will keep you – our subscribers – updated.

To summarize:

Trading capital (our opinion): Short (half position) position in gold, silver and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and initial (!) target prices:

Gold: initial target price: $1,115; stop-loss: $1,253, initial target price for the DGLD ETN: $87.00; stop loss for the DGLD ETN $63.78
Silver: initial target price: $15.10; stop-loss: $17.63, initial target price for the DSLV ETN: $67.81; stop loss for DSLV ETN $44.97
Mining stocks (price levels for the GDX ETN): initial target price: $16.63; stop-loss: $21.83, initial target price for the DUST ETN: $23.59; stop loss for the DUST ETN $12.23

In case one wants to bet on lower junior mining stocks' prices, here are the stop-loss details and initial target prices:

GDXJ: initial target price: $21.17; stop-loss: $27.31
JDST: initial target price: $14.35; stop-loss: $6.18

Long-term capital (our opinion): No positions

Insurance capital (our opinion): Full position

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 sings 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 always, we'll keep you - our subscribers - updated should our views on the market change. We will continue to send out Gold & Silver Trading Alerts on each trading day and we will send additional Alerts whenever appropriate.

The trading position presented above is the netted version of positions based on subjective signals (opinion) from your Editor, and the Tools and Indicators.

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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