Briefly: In our opinion no speculative positions in gold, silver and mining stocks are justified from the risk/reward perspective.

The mining stocks moved higher yesterday and gold rallied significantly. Silver paused a bit. The USD Index declined once again. Is the new trend already here or is this the final stage of the previous rally? Let’s take a closer look (charts courtesy of http://stockcharts.com).

Gold moved visibly higher, but only from the short-term perspective. The above long-term picture doesn’t show any meaningful changes. The price of gold moved higher, but the move above the declining resistance line was rather insignificant and remains unconfirmed. From this perspective, not much changed yesterday.

Now, when we compare gold to the prices of other commodities (the CCI Index), we’ll see that we have indeed seen a breakout. The ratio is now above the medium-term declining resistance line, which means that we have a breakout. It’s unconfirmed so far, so there are no strong immediate bullish implications, but the fact move itself makes the situation on the gold market a bit more bullish.

To be clear, the move higher in gold hasn’t changed much from the gold to bonds ratio perspective. The trend remains down.

The mining stocks moved higher, but the move was much less significant than the move that we saw in gold. Miners haven’t moved above the recent intra-day high, and closed below their June 24 intra-day high. Consequently, relative to gold, miners haven’t showed strength. The volume that accompanied Monday’s rally was also not that significant. It was big – and was not a bearish sign on its own – but not huge, which was the case with the GLD ETF.

Moving on to the USD Index, in the previous alert we wrote the following:

The analysis of the USD Index, and in particular its cyclical turning points suggests that we may not need to wait for long before the most recent trends reverse. In this case, we are likely to see a move higher in the USD Index and a move lower in the Euro Index and in the precious metals sector. If the USD Index rallies and precious metals don’t decline, then we will have a bullish confirmation; we don’t see such action now.

Actually, the opposite happened – the USD Index declined and precious metals haven’t rallied, which is a bearish sign. The question is if the USD Index has already bottomed. It could be the case, but our best guess here is that we will see a turnaround closer to the turning point (in a few days) and perhaps at slightly lower price levels. We would not be surprised to see the USD Index move to the 79.80 level or so – to the declining support line – before the bottom is formed. This could push gold, silver and mining stocks higher once again, but if this move is really small then we will have a bearish confirmation and might decide to open short positions.

The USD Index has indeed declined right to the 79.80 level (the daily low), which is actually slightly below the rising support line. It could be the case that we are seeing a fake breakdown and that a big pullback will be seen shortly, or it could be the case that it was indeed a breakdown and USD will now quickly move to the 79.50 level, where we currently see the declining resistance line that is based on the daily closing prices. Either way, it seems that the next local bottom in the USD Index will be formed shortly. This means that the next down move in the precious metals sector will also begin shortly, but will need to wait for a confirmation thereof before opening short positions in the sector.

We continue to expect more volatility to follow. We will be actively monitoring the markets and report to you accordingly.

Summing up, even though the precious metals sector moved much higher in the previous weeks, it seems that we are at or quite close to a local top in the precious metals sector. While the medium-term trend in the precious metals market is down, we were likely to see a corrective upswing – and we have. While in the past days it seemed that the corrective upswing was not over yet, we have some signs that it is over now. The most recent one is the proximity of the cyclical turning point in the USD Index combined with index’s value relative to the support lines that suggests that a move higher is just around the corner.

To summarize:

Trading capital (our opinion): No positions

Long-term capital: No positions

Insurance capital: 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 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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