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

Gold, silver and – most of all – mining stocks moved higher once again. The rise in the values of miners was exceptional as it was not only huge, but it caused an invalidation of previous breakdowns. What caused these moves and what’s next?

The answer to the first question is a bit tricky. It’s very rarely possible to tell why exactly a given move took place. In our opinion the move materialized because the situation had already been heavily oversold from a short-term point of view and gold, silver and mining stocks had all reached (or almost reached) important support levels. The dovish comments from the Fed’s minutes simply provided a trigger. If we hadn’t seen the latter, it seems likely to us that markets would find another bullish factor to focus on and rally anyway. That’s how the analysis of the investors’ attitude (through charts for instance) works. The markets are bombarded with various news each day, so it’s really difficult to tell if a given piece of information was what really triggered a given move or if it was in fact something else. However, once you find out what’s most likely to happen “eventually,” the trigger becomes less important – it becomes more important to position oneself so that one profits from what’s likely to happen eventually. In this case, it was a corrective upswing in the precious metals sector, and it seems that it’s already underway.

Having said that, let’s take a look at the charts (charts courtesy of http://stockcharts.com). Today we will focus on just 3 charts, but they clearly show what has just happened.

Yesterday, we wrote the following:

We already saw a significant daily decline yesterday, so it could be the case that the corrective downswing in the USD Index is already underway. The odds will further increase once we see a move below the rising short-term support line (which is likely to be seen shortly).

We have not yet seen the move below the rising, short-term support line. Consequently, even though the market moved lower, it was not that important.

There is a small bearish sign on the above chart, after all. Please note that we have seen 2 subsequent trading days during which USD declined. This might not seem like a big deal, until one realizes that the last time we saw something like that was in the first half of July. There have been a few cases when we saw 2 daily declines in a row since that time, but in all cases one of the sessions was almost flat. The last 2 days were the first exceptional case in this regard.

We have now seen both: 3 days of lower prices and a breakdown below the rising support line. The breakdown is not confirmed yet, but the situation has definitely already deteriorated.

What about gold?

Gold rallied substantially and it seems that the corrective upswing is well under-way. Other than that, there’s not too much new to say about the above chart. Our previous comments on gold remain up-to-date:

Gold moved almost to its Dec. 2013 intra-day low, which is a very important support, so this fact by itself makes a move higher very likely. The fact that gold rallied shortly after declining to this level and ended the session over $16 higher (and forming a reversal hammer candlestick) makes the situation even more bullish. This kind of action is likely to be followed by further rallying.

Silver moved higher as well, but the most interesting and meaningful action was seen in gold stocks.

In yesterday’s alert we emphasized that the breakdown below the 2013 lows was not yet a bearish sign as it was relatively small and unconfirmed.

The miners declined in the first part of yesterday’s session, but our stop-loss order was low enough to keep the long position intact – and it was worth it.

Gold stocks moved over 7% higher yesterday. The move was big and sharp and thanks to it gold miners invalidated all 3 recent breakdowns: below 2 declining support/resistance lines and below the 2013 low.

All of the above are bullish facts, and their combination is even more bullish.

Summing up, it seems that the corrective downswing in the USD Index and the corrective upswing in the precious metals market are underway. In our opinion, it seems to be a good idea to use speculative capital to profit from these moves.

To summarize:

Trading capital (our opinion):

It seems that having speculative (full) long positions in gold, silver and mining stocks is a good idea:

• Gold: stop-loss: $1,172, initial target price: $1,249, stop loss for the UGLD ETF $11.29, initial target price for the UGLD ETF $13.56
• Silver: stop-loss: $16.47, initial target price: $18.07, stop loss for USLV ETF $23.94, initial target price for the USLV ETF $31.73
• Mining stocks (price levels for the GDX ETF): stop-loss: $19.94, initial target price: $23.37, stop loss for the NUGT ETF $18.25, initial target price for the NUGT ETF $28.99,

In case one wants to bet on higher junior mining stock ETFs, here are the stop-loss details and initial target prices:

• GDXJ stop-loss: $28.40, initial target price: $37.14
• JNUG stop-loss: $6.19, initial target price: $16.34

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.

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 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

Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts