Gold & Silver Trading Alert: Gold Breaks Down Also in Terms of the Yen

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

Gold and mining stocks moved higher yesterday (silver closed $0.01 lower), but gold’s breakdown was not invalidated. Moreover, we would like to emphasize that gold not only broke lower in terms of the U.S. dollar but also in term of the Japanese yen. What are the implications?

Let’s take a look at the charts (charts courtesy of http://stockcharts.com).

GOLD:XJY - Gold from the Japanese yen perspective

It’s been a long time since we covered the above chart and there is a good reason for it – nothing has happened on it. Gold has been moving sideways without a major plunge as the very expansive monetary policy has supported it. However, something very important happened recently – gold broke below the major, long-term rising support line and this move is visible from the very long-term perspective. The implications are very bearish for the following weeks, but there are no implications for the following few days.

Short-term Gold price chart - Gold spot price

Gold moved a bit higher yesterday, but ultimately closed well below the previous lows. Consequently, there was no invalidation of Friday’s breakdown and the bearish implications thereof remain in place.

Moreover, please note that gold moved higher on low volume, which has bearish implications.

Short-term Silver price chart - Silver spot price

Moving on to silver, in yesterday’s alert (which remains up-to-date and we encourage you to read it if you didn’t have the chance to do so yesterday) we wrote the following:

On a short-term basis, we see that silver moved lower and broke below its previous low – silver closed below the previous lowest daily close. Silver closed only 1 cent lower, but still, it happened. This is a weak (because of the tiny size of the move) bearish sign for the short term.

Silver moved lower by just one cent yesterday, but it’s actually much more significant than it seems at the first sight. After all, that was the second daily close below the previous low. Just one more close below $14.08 and the breakdown will be confirmed and the implications will be very bearish.

GDX - Market Vectors Gold Miners - Gold mining stocks

Mining stocks continue to trade sideways, which was the case for most of November. There was no major breakdown and no major breakout – miners approached their previous 2015 lows and are not willing to move below them – at least not yet. If the USD soars and gold plunges much lower, miners will likely follow, even though their short-term outperformance of gold is a bullish sign for the short term.

Summing up, not much changed yesterday despite the gold and miners’ move higher and our yesterday’s comments remain up-to-date. The miners’ strength might be viewed as a bullish sign, but gold didn’t invalidate its breakdown, the USD didn’t invalidate its breakout and silver didn’t invalidate its breakdown either. The latter moved only 1 cent lower yesterday, but that was surprisingly significant because that was the second close below the previous 2015 low and that’s quite meaningful, despite the tiny size of the actual move. Consequently, we think that the outlook for the precious metals sector remains bearish for the short term, but not strongly bearish and we continue to think that only a small speculative short position is currently justified from the risk / reward perspective.

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

To summarize:

Trading capital (our opinion): Short position (half) position in gold, silver and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and exit / profit-take orders (! – this means that reaching them does automatically close the position):

Gold: exit / profit-take level: $1,012; stop-loss: $1,103, exit / profit-take level for the DGLD ETN: $109.27; stop loss for the DGLD ETN $85.51
Silver: exit / profit-take level: $12.60; stop-loss: $14.73, exit / profit-take level for the DSLV ETN: $96.67; stop loss for DSLV ETN $61.00
Mining stocks (price levels for the GDX ETF): exit / profit-take level: $11.57; stop-loss: $14.73, exit / profit-take level for the DUST ETF: $26.61; stop loss for the DUST ETF $15.49

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: exit / profit-take level: $16.27; stop-loss: $20.73
JDST ETF: exit / profit-take level: $46.47; stop-loss: $26.04

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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