Gold & Silver Trading Alert: Gold Pauses along with USD

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

Today’s alert is going to be short as not much happened yesterday, and what we wrote previously, remains up-to-date. Gold and silver didn’t do much and the same was the case with the USD Index. The downside target for the USD Index wasn’t reached, but it’s still likely to be reached shortly. Let’s take a look at the USD Index chart (charts courtesy of http://stockcharts.com).

Short-term US Dollar price chart - USD

In yesterday’s alert, we wrote the following:

What’s likely to happen next? The USD Index is likely to verify the breakout above the previous highs. The support levels are between 100 (an extremely round number) and 100.60 (intra-day December 2015 high), which is a quite wide area, so the specific target is unclear, so it doesn’t seem that we can base our entry point in metals and miners on the USD Index alone. We can, however, look for confirmations from the precious metals themselves once the USD is within the target area.

Two very important confirmations would be: the miners’ underperformance and silver’s very short-term outperformance. Another thing would be gold moving a bit above its 300-day moving average (for instance to $1,250).

The USD Index moved to 100.71 yesterday, and this move doesn’t seem to be significant enough to end the correction, especially that overall the USD moved higher by 0.19%.

As we wrote earlier, there’s not much to comment on in the case of gold and silver, but we have something to comment on in the case of mining stocks.

GDX - Market Vectors Gold Miners - Gold mining stocks

The volume was very low and this is something that we quite often see right before big daily price swings. In light of what we wrote about the USD Index, the odds are that this bigger move would be to the upside, but at the same time, we need to stress that we don’t think this is likely enough to justify opening long positions here.

Summing up, very little changed based on yesterday’s session and it still seems that a corrective upswing in the precious metals sector will be seen along with a corrective downswing in the USD Index. These moves are not likely to be very significant (with the exception of silver’s very temporary upswing that we are likely to see right before the top), so we are not opening long positions here. It seems likely, however, that the above would create a good opportunity to re-enter speculative short positions and further increase our profits. We will keep monitoring the market for confirmations and report to you accordingly.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): No positions (in other words: cash and/or positions from our other alerts)

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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