Briefly: In our opinion, long (full) speculative positions in gold, silver and mining stocks are justified from the risk/reward point of view.
Today’s alert is going to be very brief because there’s basically only one thing that we can comment on. Gold, silver and mining stocks barely moved yesterday - despite the intra-day volatility, silver closed unchanged, gold declined $2 and miners moved slightly higher. There is little to no implications of these moves except for some weak bullish implications of the mining stocks’ small outperformance.
The thing that we would like to discuss is the situation in the USD Index and its connection to the situation in the precious metals market. While PMs and miners didn’t do much yesterday, the USD Index declined below the previous lows, as we’d expected it to (charts courtesy of http://stockcharts.com).
At this time, the USD is at its 50% Fibonacci retracement level, but it seems more likely to us that it will decline some more instead of stopping now. The reason is that the support at about 96.6 created by combination of factors is much stronger than just the 50% Fibonacci retracement that was just reached.
The interesting, and seemingly bearish factor at this time is that metals and miners didn’t respond to the decline in the USD by rallying. This would normally be bearish if it weren’t for the reason that a few days ago the precious metals market delayed its response to the USD’s slide by a day or so. Consequently, just because we haven’t seen an immediate reaction, the situation is not necessarily bearish - at least not yet. Still, if the USD slides visibly below 97 and metals and miners still refuse to rally, we might need to close the current long positions. Again, it’s too early to do so now, in our opinion, as the jury is still out regarding the metals’ reaction or lack thereof to the USD’s decline.
Summing up, while a lot happened in currency markets yesterday and not much happened in metals and miners, it seems that overall little changed yesterday and our previous comments and outlook remain up-to-date. We think that the precious metals sector is likely to move even higher in the next several days, before turning south once again.
As always, we will keep you – our subscribers – updated.
To summarize:
Trading capital (our opinion): Long positions (full) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and initial (! – this means that reaching them doesn’t automatically close the position) target prices:
- Gold: initial target price: $1,114; stop-loss: $1,028, initial target price for the UGLD ETN: $8.59; stop-loss for the UGLD ETN $6.70
- Silver: initial target price: $14.96; stop-loss: $13.26, initial target price for the USLV ETN: $12.62; stop-loss for USLV ETN $8.54
- Mining stocks (price levels for the GDX ETF): initial target price: $15.37; stop-loss: $12.57, initial target price for the NUGT ETF: $34.59; stop-loss for the NUGT ETF $18.91
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: $20.68; stop-loss: $17.76
- JNUG ETF: initial target price: $38.97; stop-loss: $24.83
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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Hand-picked precious-metals-related links:
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Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Sunshine Profits - Founder, Editor-in-chief
Sunshine Capital Management, LLC
Sunshine Gold Investment Fund, LP
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