Briefly: In our opinion, (150% of the full position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective.

The US Presidential elections are over and so is the session following the outcome. Quite a lot happened, but has as much changed?

Generally, we already described the most important changes in yesterday’s second alert, but let’s take a look at what exactly happened on the charts (charts courtesy of http://stockcharts.com).

Gold formed the biggest reversal that you can see on the entire chart and the volume that accompanied this event is huge. It’s hard to imagine a more bearish daily session than that.

Before moving further, let’s discuss something. Until later during yesterday’s session, the session and what happened right after the Brexit vote appeared similar. The huge intra-day rally, then a correction and then… The similarity ended. Back in June, the rally resumed – also in the following days, but yesterday it was not the case. Why? Because the situations were different. Back then, the trend was bullish, miners responded rather positively, and this time the situation is entirely different. We’ve seen multiple bearish signals recently, including miners’ underperformance relative to gold, gold’s underperformance relative to the USD Index, and silver’s sudden outperformance of gold – virtually everything that can confirm PM’s bearish outlook.

In case of silver, we saw a huge daily reversal with little change in terms of daily closing prices. That was not the case in June or July. Back then, the first session that we saw that didn’t feature neither gains or losses despite a sharp rally during the session, was close to the top. It seems that his is the case once again, especially that the volume was high. High volume generally means that the outcome of the daily candlestick was meaningful and yesterday’s candlestick was a bearish reversal. The implications are bearish.

Mining stocks moved above the declining resistance line very temporarily yesterday and plunged back below it. The implications are bearish as an invalidated breakout is more bearish than no action at all.

In yesterday’s alert we wrote the following:

In today’s pre-market trading, the USD Index moved right into our target area (declining a bit below 96) and quickly reversed – at the moment of writing these words, it’s trading at about 97.97 – above yesterday’s closing prices, so it erased the entire decline. Therefore, we have not only seen a huge daily reversal (with bullish implications), but also a verification of the move above the declining medium-term red support/resistance line (verified as support). It all happened right before the cyclical turning point, so the implications are even more bullish. This has bearish implications for the precious metals sector for the following weeks and months (although the next few days could still be somewhat chaotic).

The above remains up-to-date. The USD Index soared well above 98, further invalidating any move below 97. On the above chart you can see the rare situation in which both target areas that we marked, make sense. The one that we marked in black, makes sense in terms of closing prices and the one that we marked in red makes sense in terms of the intra-day prices. What are the implications? The implications are bullish as the downside target was reached yesterday, right before the turning point. It seems that the medium-term rally can now resume.

Summing up, it seems that the next big downswing is just around the corner and that yesterday’s session provides additional confirmations for it. As always – we will keep you – our subscribers – updated.

On an administrative note, unless there are very important developments in the market, there will be no alert tomorrow due to the Veteran's Day and the travel schedule of your Editor. The Monday's alert will be posted normally.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Short positions (150% of the full position) in gold, silver and mining stocks are justified from the risk/reward perspective with the following entry prices, stop-loss orders and initial target price levels:

• Gold: initial target price: $1,006; stop-loss: $1,354, initial target price for the DGLD ETN: $73.19; stop-loss for the DGLD ETN $39.87
• Silver: initial target price: $13.12; stop-loss: $19.33, initial target price for the DSLV ETN: $39.78; stop-loss for the DSLV ETN $18.44
• Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $27.32, initial target price for the DUST ETF: $297; stop-loss for the DUST ETF $27.87

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: $14.13; stop-loss: $47.41
• JDST ETF: initial target price: $245; stop-loss: $18.59

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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Hand-picked precious-metals-related links:

Donald Trump victory a bullish factor for gold but not explosively so: GFMS

India's bank note ban to disrupt gold smuggling business

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In other news:

U.S. jobless claims drop more than expected

Dollar climbs against yen as Trump concerns ease

Indian banks call in police as people rush to ditch old banknotes

Trump economic adviser stresses growth over Fed talk: CNBC

After Brexit and Trump, Populists Target Next Dominoes in Europe

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Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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