Briefly: In our opinion opening small (half) speculative short positions in gold, silver and mining stocks is now justified from the risk/reward perspective.
Gold has finally declined last week and the decline took place on significant volume. To a large extent it corresponded to the move in the USD Index, which rallied in tune with its cyclical nature. The mining stocks haven’t moved lower, though. Are they showing strength or are they simply lagging gold at this point? Let’s take a closer look (charts courtesy of http://stockcharts.com).
From the long-term perspective nothing really changed – gold simply moved lower after touching the long-term resistance line. What we wrote yesterday remains up-to-date:
On the long-term chart we see that even though gold moved higher – slightly above the rising resistance line – it remained below the declining red (dashed) resistance line. From this perspective, not much changed yesterday. We still think that the medium-term trend remains down.
On a short-term note we see that gold has indeed declined and the decline has been meaningful. It bounced back before the end of the session, but at the moment of writing these words, the yellow metal is once again close to the Thursday’s lows. Since the volume was significant, we can imply that the decline was important and that’s a bearish sign.
Mining stocks were basically flat with only a $0.02 move. At the first sight it seems that if the mining stocks have not declined despite gold’s move lower, then it means that we have a bullish confirmation. Please note, however, that in the case of the mining stocks, the volume was small – a little more than half of the previous day’s volume. Consequently, it’s not that certain that the miners’ strength really represents what the market participants currently think of the sector.
Additionally, it’s worth noting that because of the holiday in the U.S., many investors and traders likely turned down their computers earlier on Thursday and didn’t respond to what gold and other markets had done. Simply put, Thursday’s session might not have been as important as it seems at the first sight and the low volume confirms it. On the contrary, high volume in gold despite the above suggests that the decline in the yellow metal was indeed meaningful.
Moving on to the currency market, here’s what we wrote previously:
(…) the thing that changed in case of the USD Index was its turnaround and the invalidation of the breakdown below the upper of the declining resistance lines. It happened almost right at the cyclical turning point so it seems to us that we have already seen the local bottom here and that we will see higher values of the USD index in the coming days and weeks (we could have a bit more weakness in the next few days, though, but that’s not that likely).
The implications of the above are bearish for the precious metals sector. Just as the beginning of June marked a local bottom in gold, silver, and mining stocks, it looks like the beginning of July marks the beginning of a downturn.
The above remains up-to-date and Thursday’s price action confirms the bullish case. The turning point worked once again.
From the medium-term perspective, we now see that the move below the rising support line was only very temporary and the small breakdown was already invalidated. The outlook remains bullish from this perspective and the implications for the precious metals sector remain bearish.
Summing up, the situation in the precious metals market remains bearish.
To summarize:
Trading capital (our opinion): Short (half) position in gold, silver and mining stocks with the following stop-loss levels:
- Gold: $1,343
- Silver: $21.63
- GDX ETF: $27.30
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
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
