Briefly: In our opinion, short (full) speculative positions in gold, silver and mining stocks are justified from the risk/reward point of view.
The USD Index soared yesterday and so did the general stock market. Gold didn’t do much but silver and miners moved higher. The metals and miners’ reaction seems quite positive – is it really bullish?
Before we reply to the above question, we would like to disclose our performance for the past 12 months – as requested. We prepared a detailed report on in and we invite you to read the details before you read the following part of today’s alert.
Moving back to today’s alert and the question in the first paragraph of today’s alert our reply is quite short - not likely. The USD Index has indeed rallied, but it has only moved to the short-term resistance line, and since the precious metals market tends to react to the USD’s breakouts, it might simply be waiting for a breakout above a more significant resistance line (which is just ahead). Let’s take a look at the charts (charts courtesy of http://stockcharts.com).
The USD Index soared and this move made the short positions on the EUR/USD currency pair very profitable, but as far as the precious metals market is concerned, there was no big reaction. Is this something that should make us concerned? No.
The precious metals market used to react very positively to breakouts in the USD Index’s price performance, but the one that we saw yesterday was minor. The major one is still ahead of us and consequently, we should not view the metals’ lack of declines as a bullish reaction. It’s ahead of us, but not yet present – and nothing more.
Besides, the precious metals sector declined on Wednesday, while the USD didn’t rally – perhaps it was the USD Index that was “late to the party”.
Generally, nothing happened in gold, so let’s take a look at silver and mining stocks, which both moved higher.
Both charts are somewhat similar and the similarity that they share is something that we would like to comment on. Yesterday’s move higher was accompanied by low volume. This is a bearish sign. Consequently, even though miners and silver moved higher, the implications did not change –they were and they remain bullish.
Summing up, the situation in the precious metals described in yesterday’s market alert remains up-to-date and yesterday’s move higher in silver and mining stocks doesn’t have bullish implications.
The key thing is that multiple bearish signals that we’ve described in the recent alerts (especially, in last Thursday’s alert) remain in place and continue to have very bearish implications for the medium term. While the situation and outlook for the next few days is still rather unclear (although more bearish than not), the medium-term outlook remains clearly bearish. Again, based on multiple signals that we have right now, it seems that the next big move will be to the downside and being positioned to take advantage of it remains justified from the risk/reward point of view.
As always, we will keep you – our subscribers – updated.
On a side note, today’s pre-market move higher does not change anything regarding our outlook and trading positions.
To summarize:
Trading capital (our opinion): Short position (full) position in gold, silver and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and initial (! – this means that reaching them doesn’t automatically close the position) target prices:
- Gold: initial target price: $1,050; stop-loss: $1,223, initial target price for the DGLD ETN: $98.37; stop loss for the DGLD ETN $62.34
- Silver: initial target price: $12.60; stop-loss: $16.73, initial target price for the DSLV ETN: $96.67; stop loss for DSLV ETN $40.28
- Mining stocks (price levels for the GDX ETF): initial target price: $11.57; stop-loss: $18.13, initial target price for the DUST ETF: $26.61; stop loss for the DUST ETF $9.22
In case one wants to bet on junior mining stocks' prices (we do not suggest doing so – we think senior mining stocks are more predictable in the case of short-term trades – if one wants to do it anyway, we provide the details), here are the stop-loss details and initial target prices:
- GDXJ ETF: initial target price: $16.27; stop-loss: $25.23
- JDST ETF: initial target price: $46.47; stop-loss: $15.58
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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