Gold & Silver Trading Alert: Gold Finally Declines Along with Silver and Miners

tools spotlight

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

In the previous days, silver and mining stock declined, but gold stayed relatively high. This changed yesterday, as gold declined more than $13. Is the top in?

That’s likely, but that’s not the right question to be asking at this time – after all it was already likely yesterday and on Monday. The right question is if the outlook is now bearish enough to justify opening short positions.

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

Short-term US Dollar price chart - USD

In yesterday’s alert we wrote: the situation (…) deteriorated as the USD closed below the rising blue support/resistance line. It seems that a move to the rising support lines and the 50% Fibonacci retracement level (or even the 61.8% retracement) could be in the cards in the following days.

If this move materializes, we might get a move up in the precious metals sector and the precise manner in which the PMs would move higher could provide us with strong bearish confirmations, which could in turn result in opening speculative short positions at more favorable prices than the current ones. Still, that’s a big “if”. Whether the above scenario plays out or not, we’ll keep you updated.

In short, the above remains up-to-date as the USD Index closed below the declining resistance line. It’s back above it at the moment of writing these words, so we can say that the outlook improved but only slightly.

Short-term Silver price chart - Silver spot price

Silver (as well as silver stocks) moved lower once again and the decline is now visible. However, let’s keep in mind that silver is known to move back up right before a slide begins, so we could still see something like that shortly. In the recent past, we saw this kind of performance on August 10, July 8, and May 11. Consequently, the situation remains somewhat unclear with regard to the short term. In case of the medium term move, we saw another bearish sign from the ratio between the South African rand and the U.S. dollar.

ZAR:USD

We commented on this ratio and its correlation with silver back when it initially reached the declining resistance line, saying that it was a sign that the rally in the ratio and silver was nearing its end. Silver declined in the following weeks. Well, we have the same signal once again and the implications are once again bearish.

GDX - Market Vectors Gold Miners - Gold mining stocks

In yesterday’s alert, we wrote that the reversal was a bearish sign, but the tiny volume could indicate a sharp rally similar to what we saw after we posted the September 21 Gold & Silver Trading Alert:

The volume was not just low – it was extremely low. Can it tell us anything? It suggests extra caution as metals and miners could be on the verge of a sudden upswing - that’s what happened in the previous months.

Miners soared on the following day, as we had expected. Will the same happen today? It’s not very likely, but it’s not unlikely either. The important thing is that this analogy more or less nullifies the bearish implications of the underperformance vs. gold and the reversal shape of the daily candlestick.

Mining stocks declined yesterday, but the volume was low once again, which means that the above comments remain up-to-date. Miners could still rally on a very temporary basis before the big decline resumes.

Moreover, GDX moved to the rising support line, which could trigger another rally before the big decline starts.

Weekly Platinum price chart - Platinum spot price

Meanwhile, platinum already broke below the rising support line, moved back to this level and declined once again. This is the 3^rd week after the breakdown, and it if we get a close below the rising support line on Friday (and thus the weekly close), the breakdown will be complete and implications will be very bearish for the following weeks. Since platinum is highly correlated with the rest of the precious metals, it’s likely to have bearish implications for them as well.

Finally, let’s take a look at gold.

Short-term Gold price chart - Gold spot price

Gold moved visibly below the upper rising support line based on the closing prices. The breakdown below this line is now confirmed and the outlook deteriorated based on it. However, gold didn’t close below the lower of the support lines, the one based on the intra-day lows.

Moreover, the Stochastic indicator just flashed a sell signal and while the buy signals from the daily version of this indicator are not very reliable, the sell ones should not be overlooked.

All in all, the outlook based on the above chart is bearish, but not extremely bearish.

Summing up, we’re very close to re-opening the short positions in the precious metals sector, but so far we have not received enough bearish confirmations to proceed. Please note that even if we re-enter the short positions at prices close to the levels at which we had (profitably) closed the previous short positions, it will be done when the risk associated with holding the positions is smaller.

The above is about the short-term trends only - the medium-term outlook was bearish and it remains bearish also today. We are monitoring the markets for signs and confirmations of weakness or strength and we will report to you accordingly.

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

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.

=====

Latest Free Trading Alerts:

Last week, interesting pieces of data on housing and manufacturing were released. What do they imply for the gold market?

Housing, Manufacturing and Gold

We see that Bitcoin came back from under $600. Is this a very important bullish development? We present our opinion in this alert.

Bitcoin Trading Alert: Starting Point of Decline Not Far?

=====

Hand-picked precious-metals-related links:

PRECIOUS-Gold hits one-week low as dollar firms

PRECIOUS-Gold Extends Losses As Dollar, Stocks Rise

Giant arctic gold mine takes one step closer

Restarted Argentinian mine to yield 1.7 million silver ounces/yr