Gold & Silver Trading Alert: Gold, Silver and Miners at Their Previous Lows

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

We once again didn’t see the continuation of the decline yesterday, but there was no profound comeback either. It seems that the previous short-term breakdowns have been confirmed. Will this be enough to trigger the breakdown below the previous 2015 lows?

The mentioned breakdowns might not be enough, but that’s not the only bearish signal that we currently have. In fact, there are multiple signs. We covered them in great detail on Monday, so we will not go over all of them once again today as Monday’s alert remains up-to-date. We would, however, like to point out that the GDX closed below $14 for a third consecutive trading day, gold closed below $1,100 for a third consecutive trading day (the breakdown was therefore verified) and silver declined once again as well and it’s now very close to its 2015 lows. Let’s take a look at the latter (charts courtesy of http://stockcharts.com).

Short-term Silver price chart - Silver spot price

In fact, silver’s lowest daily close of 2015 was $14.08 (Aug. 26) and the second lowest daily close of $14.38 was seen on Sep. 14, Sep. 15, and… Nov. 10 – yesterday.

Other than the above, there’s little new that we can say today – the technical picture for the key metals, indices and ETFs remains unchanged, so our previous comments simply remain up-to-date. Consequently, we will summarize today’s short alert in the same way we summarized the previous issue:

Summing up, the medium-term decline in the precious metals sector continues and there are multiple signs that confirm this bearish outlook (including the outlook for the USD Index). We could (and are in fact likely to) see some sort of corrective upswing eventually (perhaps this week), but when that happens, it’s not likely that the move higher would be significant or long-lasting. There is a good chance that the next wave down will be very sharp and even if one exits the short position now, re-entering it at more favorable levels might be difficult. In our opinion, the current short position continues to be justified from the risk to reward point of view and it seems likely that the profits on it will increase further, which will consequently further increase our profitability.

If / when we see a corrective upswing, it’s not likely to be big or to take long. We expect it to take between 1 day and 2 weeks (approximately) and to take gold $10 - $50 higher. It’s not clear what part of the above-mentioned period and range is more probable, so we don’t think that adjusting the current position in light of the above is justified from the risk/reward point of view. It’s more clear that the decline will continue after the above-mentioned correction.

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

To summarize:

Trading capital (our opinion): Short position (full) position in gold, silver and mining stocks is 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: $1,050; stop-loss: $1,167, initial target price for the DGLD ETN: $98.37; stop loss for the DGLD ETN $71.04
Silver: initial target price: $12.60; stop-loss: $16.73, initial target price for the DSLV ETN: $96.67; stop loss for DSLV ETN $40.28
Mining stocks (price levels for the GDX ETF): initial target price: $11.57; stop-loss: $18.13, initial target price for the DUST ETF: $26.61; stop loss for the DUST ETF $9.22

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: $16.27; stop-loss: $25.23
JDST ETF: initial target price: $46.47; stop-loss: $15.58

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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