Gold & Silver Trading Alert: Gold Price Upside Target

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

In the previous few alerts we focused on the price targets for mining stocks as they were (and still are) the part of the precious metals sector that rallied most significantly, but that’s only part of the full picture. In a globalized economy and interconnected financial markets, none of them can move totally independently from each other – usually the opposite is the case, especially within the same sector. Consequently, we can expect gold’s, silver’s and miners’ tops to confirm each other and discussing all of them is necessary.

Let’s move right to the charts (charts courtesy of http://stockcharts.com).

Short-term Gold price chart - Gold spot price

It seems that gold will move to the $1,295 - $1,310 area before the rally is over. Why there? Because a rally – in general – is likely to remain in place until it approaches some kind of resistance level. There is no meaningful resistance below $1,294. The latter is created by the 38.2% Fibonacci retracement level based on the July – October decline, the second resistance is the declining line based on the July and August lows and the third one is provided by the 50% retracement.

Moreover, by the time gold gets to these levels, the odds are that the 50-day moving average (given the pace at which it declines) will be more or less at the $1,310 as well.

Which of these levels will stop the rally? It’s unclear at this time, but it will likely become clearer as gold moves higher and we see target areas being reached in other markets along with other bearish signs. One of the confirmations would be a move of the RSI indicator to the 50-60 area as that’s what we’ve seen quite often at previous local tops.

Short-term Silver price chart - Silver spot price

In the case of silver, we have a similar situation – there is no significant resistance level until about $18.20 (the rising resistance line), the next one is provided by the August low ($18.46) and then we have the 38.2% Fibonacci retracement at about $18.67. The 50-day moving average is likely to align with this level in several days, so it’s likely to make this resistance even stronger.

As it is the case with gold, we’ll wait for confirmation before saying which of these levels is most likely to provide the final resistance.

Please note that silver is the most volatile part of the precious metals sector during the turnarounds, so it will not be too surprising if silver moves above $19 temporarily. It’s not likely, but if anything were to exceed our target levels, silver would be the first candidate. Consequently, extra caution is required in case of silver and so is watching other markets for confirmations.

GDX - Market Vectors Gold Miners - Gold mining stocks

Today’s mining stocks includes a few more months than yesterday’s chart and they help us create an additional resistance level. The October bottom was quite close to the May bottom and if the rally that we see now is similar to what we saw previously, we’ll see a head-and-shoulders pattern. We don’t have to see it, but these patterns tend to form quite symmetrically if bottoms are aligned, so we might see this also this time. This suggests a move to the upper green line (a bit below $27).

Consequently, we stretched our target area a bit higher. Whether miners top closer to $26 or $27 is unknown, but it’s likely to become clearer as they move closer to these levels.

Please note that the volume during yesterday’s rally was not small and therefore, the implications of yesterday’s rally are bullish.

Summing up, the outlook remains bullish for the short term. The profits on our long positions increased once again and it seems that they will increase further before the trade is over.

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

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Long positions (100% of the full position) 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: $1,295; stop-loss: $1,237, initial target price for the UGLD ETN: $12.47; stop-loss for the UGLD ETN $10.23
Silver: initial target price: $18.45; stop-loss: $16.88, initial target price for the USLV ETN: $19.78; stop-loss for the USLV ETN $14.67
Mining stocks (price levels for the GDX ETF): initial target price: $25.77; stop-loss: $21.77, initial target price for the NUGT ETF: $17.38; stop-loss for the NUGT ETF $9.77

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: $43.87; stop-loss: $35.86
JNUG ETF: initial target price: $15.87; stop-loss: $8.78

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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