Gold & Silver Trading Alert: Correction or a Major Top?

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Briefly: In our opinion no speculative positions in gold, silver and mining stocks are currently justified from the risk/reward point of view.

Gold declined yesterday after reaching the previous highs - did we just see a major top?

In short, it's too early to say, because the precious metals market declined only a little yesterday. The decline confirmed our yesterday's doubts regarding the metal's low-volume rally, but it was not significant enough to change anything or add some clarity to the short-term outlook.

Two interesting developments took place, though. The GDX ETF moved lower but there was no clear invalidation of the breakout above the preceding highs and the volume was low. Rallies followed such low-volume declines on many occasions, so the implications are bullish.

However, the second thing that happened has bearish implications. The relative performance of PMs and the USD Index suggests lower PM prices as the latter more or less cancelled the previous day's rally, while the USD didn't move as high. So, when examining the two previous sessions together, we get a picture in which metals and miners are underperforming the USD Index.

Summing up, we saw an additional bearish signal yesterday, but we also saw an additional bullish one. Consequently, based on yesterday's session, the outlook didn't change and it remains unclear for the short term and bearish for the medium term. Today's pre-market decline favors lower PM prices, but we'd prefer to see more meaningful action before opening a speculative position, in order to limit the risk. As always, we'll keep you informed should anything change.

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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