Briefly: In our opinion, a speculative short position (full) in gold, silver and mining stocks is justified from the risk/reward point of view.
At the first sight, it usually seems that no changes in the price of a given asset mean no changes in its outlook. In most cases it’s true, but in yesterday’s session something indeed changed. Let’s take a closer look (charts courtesy of http://stockcharts.com).
Gold’s breakdown below the rising support line (the one based on daily closing prices) was just confirmed by a third consecutive close below. This means that the situation in gold further deteriorated even though the price itself didn’t really move.
We can say the same thing about the situation in the silver market. The white metal stayed below the long-term support/resistance line for an additional day, which makes the invalidation of the previous breakout more meaningful. As mentioned yesterday, based on our experience, weekly confirmations are much more important than daily ones in the case of long-term lines. Consequently, the outlook for silver deteriorated, but not extremely.
In the case of mining stocks, we saw another move higher yesterday, but it was also another move higher that took place on relatively low volume.
Consequently, what we wrote about Wednesday’s price / volume action is also a correct description of what happened on Thursday:
On a short-term basis, we see that miners moved a bit higher and that they did so on low volume. This suggests that the move higher was just a temporary correction and that the true direction in which the miners are moving is down.
The situation in the long-term HUI Index chart and related ratios remains unchanged from yesterday and the implications are bearish.
Overall, we can summarize the situation in the same way as we described it in our previous alert:
Summing up, the situation deteriorated yesterday, but not very significantly. We still have to see the invalidation of the silver’s breakout in terms of weekly closing prices before we can say that the corrective upswing is (very likely) over. The move below the declining support/resistance line is bearish, but not extremely bearish just yet. The breakdown in gold was just confirmed and mining stocks seem to be continuing to lead metals lower – likely much lower. The overall outlook for the precious metals sector remains bearish – it seems that the final bottom is still ahead of us.
We realize that gold’s lack of exciting movement (it’s been moving back and forth around the $1,200 level for weeks) is discouraging and boring, but it seems very likely that patience will be well rewarded. It’s before the move that one should be paying extra attention to the signals, not after it. The former is definitely the case at this time.
We will keep you – our subscribers – updated.
To summarize:
Trading capital (our opinion): Short (full 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: $18.13, initial target price for the DSLV ETN: $67.81; stop loss for DSLV ETN $38.44
- 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 $10.37
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: $28.68
- JDST: initial target price: $14.35; stop-loss: $5.65
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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Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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