Briefly: In our opinion, no speculative positions in gold, silver and mining stocks are justified from the risk/reward point of view. We will likely have another trading opportunity shortly.
Once again gold tried to break above the $1,280 level and once again it failed to do so. Mining stocks declined quite significantly and so did silver. The key question is: is the top in?
In our view that’s about 60% likely. That’s more than 50%, so this is most likely the case, but at the same time the chance is too low to justify opening short positions at this time.
Let’s take a closer look at the charts (charts courtesy of http://stockcharts.com).
Gold tried to break higher once again and once again it didn’t manage to do so. Finally gold ended yesterday’s session lower and this was the third day in a row when we saw a bearish reversal (an attempt to move higher followed by its immediate invalidation). This is a bearish combination.
Silver declined, but that’s not surprising given that its previous breakouts were usually quickly invalidated. The outlook here was not bullish and this remains to be the case also at this time.
In case of the HUI Index we see something similar to what we have in gold – gold stocks are trying to break above the 180 level, but have not managed to do so for a second week. Moreover, the sell signal from the Stochastic indicator remains to be clearly visible. The implications are bearish but they will be even more bearish when this reading is confirmed by weekly closing prices.
From the short-term point of view, we also see the unsuccessful intra-day attempts to move higher. There were no new highs on an intra-day basis either. The price-volume link continues to favor lower prices in the following weeks – the volume that accompanies daily declines is much higher than the volume seen during daily rallies.
Still, the price-volume link became bearish in the final days of February, but gold still managed to move higher after that time, so the negative price to volume link now doesn’t necessarily imply a move lower right away.
Moreover, even though miners declined visibly yesterday, they didn’t invalidate the breakout above the late-February high, so this move didn’t change that much.
Summing up, the situation in the precious metals sector is bearish, but not bearish enough for us to re-open the short positions in the precious metals sector just yet. Gold appears to be starting to underperform the USD Index (in the past few days the USD declined and gold didn’t rally) but the size of this phenomenon is not yet significant. Mining stocks underperformed yesterday, but this by itself is not enough to make the situation much more bearish. Consequently, it seems that it’s justified to wait and re-enter the short position (or open a long one if we get much more bullish signs, but this doesn’t appear likely) in more favorable conditions (preferably at higher prices after seeing a major daily reversal).
As always, we will keep you – our subscribers – updated.
To summarize:
Trading capital (our opinion): No positions
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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Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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