Gold & Silver Trading Alert: Gold ahead of the Fed Announcement

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

Today’s alert is once going to be short, because – just like it was the case on Monday - nothing really happened in the precious metals market yesterday – we saw a pause, which didn’t change the previous trends and all that we wrote on Monday remains up-to-date.

Still, let’s take a look at the size of the volume in gold (charts courtesy of http://stockcharts.com).

Short-term Gold price chart - Gold spot price

The volume was not as tiny as it had been on Monday, but it was still small. This continues to suggest that the next big move will be to the downside and that this week’s upswing was only a correction within a decline.

GDX - Market Vectors Gold Miners - Gold mining stocks

The volume on which mining stocks moved a bit higher was also relatively low, so once again it seems that the next big move will be to the downside.

As far as today’s price action is concerned, we’ve seen a move higher in both gold and silver, but only the latter moved more visibly (19 cents). Some market participants are expecting some dovish comments from the Fed, but we doubt that we will hear anything significant today. We do not expect to see an increase in the rates either. The most likely outcome is that we’ll see a temporary move higher (not much higher; it’s not possible to say how high exactly – perhaps it’s already over) based on the expectations of bullish comments from the Fed and once nothing really happens, the situation will reverse. In fact, it could be this uncertainty that’s been preventing the precious metals market from declining in the past several days.

All in all, since nothing changed, we can summarize today’s alert just like we summarized yesterday’s issue:

Summing up, silver is likely to move much higher in the coming years and so do gold and mining stocks, however, it seems likely that we will see another big decline before seeing much higher prices. Last week’s reversals and silver, gold, mining stocks and the USD Index suggest that the decline is already underway, even though we can’t rule out another temporary move higher.

Consequently, we think that a short position (full) in gold, silver and mining stocks is justified from the risk to reward point of view. It’s rather unclear, but it seems that the decline should start within the next several days and the decline could remain in place for a few months (no market moves in a straight line and there will be corrections, though).

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

To summarize:

Trading capital (our opinion): Short positions (full) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and initial target price levels:

Gold: initial target price: $973; stop-loss: $1,304, initial target price for the DGLD ETN: $89.05; stop-loss for the DGLD ETN $47.15
Silver: initial target price: $12.13; stop-loss: $18.05, initial target price for the DSLV ETN: $61.16; stop-loss for DSLV ETN $26.80
Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $24.07, initial target price for the DUST ETF: $5.72; stop-loss for the DUST ETF $1.74

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: $36.37
JDST ETF: initial target price: $8.86; stop-loss: $2.27

Long-term capital (our opinion): No positions

Insurance capital (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 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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Hand-picked precious-metals-related links:

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