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 silver tried to move sharply higher yesterday. “Tried” is the key word here as the move failed in both metals. Should we give PMs credit for trying to move higher or is the reversal a more significant – and bearish – development?
We think that the latter is much more probable. We have just seen that there was not enough buying power to take metals higher and intra-day reversals are generally a bearish sign for the short term. The strength of this kind of signal is bigger if we see it after a rally, but the implications are bearish at this time as well. Let’s take a closer look (charts courtesy of http://stockcharts.com).
In case of both gold and silver, we saw a reversal on relatively significant volume. The last part of the move (after the reversal) was to the downside, so the current immediate-term trend is down. The short-term implications are bearish, and the medium-term ones have been bearish for weeks.
From the long-term perspective, yesterday’s move was another attempt to move above the declining resistance line – an unsuccessful one and the failure itself is a bearish sign on its own.
As far as mining stocks are concerned, the medium-term trend remains down and yesterday’s price action (a small move lower) serves as a small confirmation (it was another day when miners underperformed gold).
Overall, the way we summarized yesterday’s alert remains up-to-date also today and yesterday’s intra-day reversal is another factor confirming the bearish outlook:
Summing up, silver’s invalidation of its breakout and gold’s confirmed breakdown further confirm the bearish outlook for the entire precious metals sector. It seems that the final bottom is still ahead of us.
Several weeks have passed since we opened our speculative short positions in the precious metals sector and while the positions are not yet significantly profitable (miners and silver are trading at about the same price levels, while gold is lower), the reasons for which we opened them remain up-to-date, and so does the enormous profit potential.
We realize that gold’s lack of exciting movement (it’s been moving back and forth around the $1,200 level for weeks) is discouraging and boring, but it seems very likely that patience will be well rewarded. It’s before the move that one should be paying extra attention to the signals, not after it. The former is definitely the case at this time.
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: $18.13, initial target price for the DSLV ETN: $67.81; stop loss for DSLV ETN $38.44
- 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: $28.68
- JDST: initial target price: $14.35; stop-loss: $5.65
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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