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

Gold and (especially) silver moved visibly higher early in yesterday’s session and so did mining stocks but ultimately both miners and silver erased most of their early gains. Is the corrective upswing already over?

Quite likely, but we can’t rule out another pause or attempt to move higher in the following days or weeks. In short, our comments from the previous alerts remain up-to-date. Let’s take a look what changed or seems to have changed based on yesterday’s price action (charts courtesy of http://stockcharts.com).

The long-term chart didn’t change at all based on yesterday’s price swing, so let’s examine the short-term chart.

On the above chart we see gold’s attempt to once again move above the declining resistance line - a failed attempt. Gold moved to this line and declined once again. Overall, the volume during the session was lower than what we saw during the previous day’s downswing (and it’s much more visible in the case of the GLD ETF), which suggests that yesterday’s move higher was just a pause or a correction. The trend remains down.

Did anything change in the silver market?

Not really. Silver moved sharply higher before the markets opened in the U.S. but ultimately closed just 27 cents higher – a move too small to change anything. Again, the trend remains down and our previous comments remain up-to-date:

In short, silver’s recent move higher (and back down) was simply another attempt to move to or above the declining red resistance line. Another one that failed. The trend simply remains down and we are likely to see much lower silver prices in the coming months.

Based on the time factor, we moved our target area for silver a bit lower – it’s now around the $12 level. We will comment on the price targets for silver (in a similar way to our comments on gold price targets) in one of the following alerts.

The relatively new thing is that mining stocks didn’t show strength yesterday – they barely moved higher despite gold’s $10 rally.

Not only is the size of yesterday’s upswing in miners a bearish sign, but we can say the same about the volume that accompanied this “rally”. The upswing took place on tiny volume that suggests that the buying power is either drying up or has already dried up.

We have received a few more questions about the miners’ outperformance last week and its implications, so we would once again like to emphasize that we don’t think that it has bullish implications at this time. We covered the reasons in greater detail in Friday’s Alert, but in short, the miners to gold ratio moved to an extreme level which signaled a local top in the past and was a quite reliable factor. Consequently, the implications are bearish also this time.

Overall, since the situation is developing according to our expectations, we can summarize today’s alert in a similar way to what we wrote previously:

Summing up, the medium-term decline is not threatened by last week’s or Monday’s temporary upswing – it seems it was simply delayed (and the USD’s reversal along with gold and silver’s decline suggests that we may not need to wait for much longer). The outlook hasn’t changed, so the odds are that the profits that we have on the short position in the precious metals sector will become even bigger in the following weeks.

We will keep you – our subscribers – updated.

To summarize:

Trading capital (our opinion): Short (full position) position in gold, silver and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and initial (!) target prices:

• Gold: initial target price: $1,115; stop-loss: $1,253, initial target price for the DGLD ETN: $87.00; stop loss for the DGLD ETN $63.78
• Silver: initial target price: $15.10; stop-loss: $17.63, initial target price for the DSLV ETN: $67.81; stop loss for DSLV ETN $44.97
• Mining stocks (price levels for the GDX ETN): initial target price: $16.63; stop-loss: $21.83, initial target price for the DUST ETN: $23.59; stop loss for the DUST ETN $10.37

In case one wants to bet on lower junior mining stocks' prices, here are the stop-loss details and initial target prices:

• GDXJ: initial target price: $21.17; stop-loss: $27.31
• JDST: initial target price: $14.35; stop-loss: $6.18

Long-term capital (our opinion): No positions

Insurance capital (our opinion): Full position

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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Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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