Gold & Silver Trading Alert: Gold’s Breather #2

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

While Monday’s alert was quite long and we had a few things to comment on in yesterday’s alert, today’s one will be brief as (just like it was the case on Tuesday and Wednesday) there’s not much new for us to discuss.

Gold, silver and mining stocks seem to have paused after yesterday’s decline and since they closed very close to the previous closing prices, we didn’t see any new technical development and the technical situation and outlook based on it remain unchanged and bearish.

There is a bearish signal that we see outside of the world of charts. It’s actually a bullish thing in the long run, but seems to indicate lower gold values in the near future. What we’re writing about is yesterday’s action in Sweden and gold’s reaction to it. The Swedish central bank cut its repo rate to -0.10 percent and introduced a QE program, which is likely to be a bullish factor for gold in the long run, but its effect on the gold market in the short run is unclear. While its effect is unclear, it seems that gold’s reaction tells us something. It seems that most market participants view QEs and lower rates as a bullish factor for gold. Consequently, gold’s immediate reaction should be a sharp rally. We saw some strength on a very temporary basis in the pre-market trading, but gold moved back down before the session was over (not entirely, but almost entirely). Overall, the gold market seems to have largely ignored this “theoretically bullish” piece of information.

Sure, the scale of QE is much smaller in the case of Sweden than it was in the case of the ECB but still we might have seen at least a daily rally – and we didn’t. Please recall that gold’s meager response to euro-QE was one of the main reasons for which we decided to open the short position on Jan. 23 and we now see something similar, but on a smaller scale. The implications are bearish once again but not strongly bearish.

Summing up, the decline in the precious metals market is likely not over yet, also in the very short term, but we could see some strength after an additional slide to $1,200 in gold, as we wrote yesterday. The important thing to keep in mind is that we are after major, medium-term sell signals from the Stochastic indicator for gold and the HUI Index, so the corrective upswing is not likely to be very significant. It seems that the profits on the current short positions will become even bigger, so we’re keeping them intact.

As always, we’ll keep you – our subscribers – informed.

To summarize:

Trading capital (our opinion): Short positions (full) in gold, silver and mining stocks with the following stop-loss orders and initial (!) target prices:

Gold: initial target level: $1,180; stop-loss: $1,263, initial target level for the DGLD ETN: $75.23; stop loss for the DGLD ETN $61.69
Silver: initial target level: $15.70 ; stop-loss: $17.83, initial target level for the DSLV ETN: $66.25 ; stop loss for DSLV ETN $45.00
Mining stocks (price levels for the GDX ETN): initial target level: $18.40; stop-loss: $23.37, initial target level for the DUST ETN: $18.99 ; stop loss for the DUST ETN $9.06

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 level: $23.37; stop-loss: $28.57
JDST: initial target level: $12.30 ; stop-loss: $6.89

Long-term capital (our opinion): Half positions in gold, half positions in silver, half position in platinum and half position in mining stocks.

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 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.

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The markets were surprised yesterday by the decision of the Swedish central bank, which cut its repo rate to -0.10 percent and introduced QE. In that way, the Riksbank joined the club of central banks introducing negative interest rates (others are the Danish central bank, SNB and the ECB). What does it mean and what are the implications for the gold market?

Sweden Imposes Negative Repo Rate

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