Briefly: No speculative positions in gold, silver and mining stocks are justified from the risk/reward perspective. We are expecting to be back in the short positions relatively soon, but not yet at this time.
Today’s alert is going to be short, as there’s very little to report on. Gold, silver and mining stocks all declined yesterday, but the moves were small and accompanied by relatively low volume. Consequently, it doesn’t look like a beginning of a decline yet – it looks much more like a pause within a move higher. We discussed the upside targets yesterday, and what we wrote, remains up-to-date.
The USD Index moved a bit higher yesterday, but just like it was the case with PMs, the USD’s move was limited and so are its implications.
Today is the day when we get news from ECB, which could trigger a move up or down (either immediately once its released or later during the US trading hours), but since we have no strong buy or sell signals so far, it will be best to wait what happens and see how the markets react to it. Please note that it is not the piece of information itself that is the key thing to watch, but the market’s reaction to it.
The reactions show how many people are willing to follow certain signals and the most bullish situation is if nobody wants to follow bad news (how can gold decline in such an environment for long?) and conversely, the most bearish situation is if nobody wants to follow good news (how can gold rally in such an environment for long?).
Therefore, the most bullish scenario would be if we had news negative for gold, but gold still rallied. Conversely, the most bearish scenario would be if we had news positive for gold (like a rate cut or additional monetary stimulus), but gold declined.
Anything in between can have different implications based on the context. For instance, if we have positive news for gold, and gold rallies, but just a little (compared with how relevant the information is) then the implications would still be rather bearish.
Based on what we see on the charts and what we discussed earlier this week, it seems most likely that we’ll see an additional upswing followed by sell signals, which should allow us to enter short positions at more favorable prices and with smaller risk, thus with a much better risk to reward ratio than what we have right now.
At the moment of writing these words, it seems that the metals’ reaction to the USD’ slide was too small, which serves as a bearish confirmation, but it’s still not enough to open a speculative short position, in our view.
As always, we will keep you – our subscribers – updated.
To summarize:
Trading capital (supplementary part of the portfolio; our opinion): No positions
Long-term capital (core part of the portfolio; our opinion): No positions
Insurance capital (core part of the portfolio; our opinion): Full position
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 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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Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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