Briefly: In our opinion speculative short positions (half) are justified from the risk/reward perspective in gold, silver, and mining stocks.
Not much happened in the precious metals market on Friday and what we wrote in Friday’s alert remains up-to-date. There is, however, one thing that we would like to focus on today and that’s the USD Index’s performance (charts courtesy of http://stockcharts.com.)
The Dollar Index rallied strongly on Friday. It’s not surprising by itself, given what we wrote previously:
We saw a temporary move below the 2013 low, which was immediately invalidated and this, by itself, made the situation more bullish. Please note that the move materialized very close to the cyclical turning point – it was not surprising. The cyclical turning point plus the strong support in the form of the 2013 low create a very bullish combination.
We had previously emphasized that the cyclical turning points for the USD Index worked particularly well for the precious metals market, and this time was no different. The implications for the PMs are bearish.
The last sentence of the above quote is what we would like to focus on. The USD Index rallied, but metals didn’t decline. That may be viewed as metals’ strength, but we don’t think that’s the case here. There have been many cases, when the reaction of the precious metals market was simply delayed. The situation seen in late October 2013 serves as a perfect example. The USD rallied very strongly and the metals’ reaction was mild at the beginning. The decline accelerated shortly and overall took gold about $150 lower.
Consequently, we don’t think that the gold’s and silver’s lack of reaction to the dollar’s daily rally is concerning at this point. If we see this kind of strength also in the following days, the situation might become bullish or neutral, but, in our opinion, it’s not the case at this time.
Summing up, outlook for the precious metals sector remains bearish for the short and medium term (for the following weeks and months).
To summarize:
Trading capital (our opinion): Short positions (half) in: gold, silver, and mining stocks with the following stop-loss orders:
- Gold: $1,326
- Silver: $20.30
- GDX ETF: $25.20
Long-term capital: No positions.
Insurance capital: Full position.
Please note that a full speculative position doesn’t mean using all of the speculative capital for this trade. You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.
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 automated tools (SP Indicators and the upcoming self-similarity-based tool).
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.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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