Gold & Silver Trading Alert: Clarified Outlook #2

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

Today’s alert will be very brief, because basically everything that we wrote yesterday remains up-to-date (in fact, the markets are already declining as we expected). Describing charts today would be simply quoting yesterday’s descriptions, so if you haven’t read yesterday’s alert we suggest that you do so now (in particular, we suggest examining the silver to gold ratio chart that we featured).

There is one thing that happened yesterday and that we would like to point out. In the previous days mining stocks moved higher and lower along with the general stock market. Consequently, one might have thought that if the main stock indices rallied again, the miners would follow. Yesterday, the general stock market moved higher quite visibly and yet mining stocks declined with the rest of the precious metals sector. Therefore, mining stocks are not as strong as other stocks, but weaker. This is in tune with our bearish outlook and serves as its confirmation. It’s not a major bearish factor, we are not suggesting doubling the size of the short position just yet (but it’s likely that we will write about it relatively soon).

Overall, little changed yesterday and we can summarize the situation in the same way as we did yesterday:

Summing up, while the situation was rather unclear over a week ago, it seems rather clear and bearish now. We expected the bullish signal not to result in a major rally, but a local one, and we’ve seen just that. The decline seems to be resuming based on the signals from the gold market, mining stocks and – most of all – from the silver market and the silver to gold ratio. Since the odds for a significant move up have diminished significantly at this time, it seems that re-opening short positions (half positions for now) in gold, silver and mining stocks is justified from the risk/reward point of view.

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

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: $1,231, initial target price for the DGLD ETN: $87.00; stop loss for the DGLD ETN $66.10
Silver: initial target price: $15.10; stop-loss: $17.63, initial target price for the DSLV ETN: $67.81; stop loss for DSLV ETN $45.01
Mining stocks (price levels for the GDX ETN): initial target price: $16.63; stop-loss: $20.17, initial target price for the DUST ETN: $23.59; stop loss for the DUST ETN $13.75

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: $26.28
JDST: initial target price: $14.35; stop-loss: $7.21

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 automated tools (SP Indicators and the upcoming self-similarity-based tool).

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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