Briefly: In our opinion, full (150% of the regular full position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.
Gold didn’t move much yesterday, but it’s rally seems to be picking up today (with gold about $10 above yesterday’s close) – is it a start or and end to a rally?
In short, it seems that it’s quite close to a rally’s end as the rising resistance line is just several dollar’s above today’s intra-day high. Please take a look below for details (charts courtesy of http://stockcharts.com).
The upper rising support line (the more important one, based on the daily closing prices) is currently at about $1,275 – about $10 above the current gold price and consequently no breakout was seen or is likely to be seen. Therefore, today’s upswing didn’t change the technical picture for the yellow metal.
Let’s discuss what would happen and change if gold did indeed break out above $1,275 and verify this breakout. It would then be likely to rally to about $1,300 – its next resistance level. However, whether the above would change the outlook is a different matter – it would depend for instance on whether mining stocks would show outperformance instead of the current continuous underperformance and on other factors, including the situation in the USD Index.
The USD Index has been moving back and forth in the last couple of days but it could decline to 96.40 (final of the classic Fibonacci retracement levels) relatively soon. If that happens, gold could move higher, but it seems that a move to $1,275 would be reasonable response – it wouldn’t have to rally all the way to $1,300 to form a major reversal. Still, if that was to happen and the USD didn’t confirm a breakdown below 96.4, it would most likely not change the outlook for the precious metals market.
Summing up, the outlook for the precious metals market remains bearish. We remain to be in a situation where there are pennies to the upside (literally in silver and mining stocks) and dollars to the downside.
As always, we will keep you – our subscribers – informed.
To summarize:
Trading capital (supplementary part of the portfolio; our opinion): Short positions (150% of the full position) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and initial target price levels / profit-take orders:
- Gold: exit-profit-take level: $1,063; stop-loss: $1,317; initial target price for the DGLD ETN: $81.88; stop-loss for the DGLD ETN $44.57
- Silver: initial target price: $13.12; stop-loss: $19.22; initial target price for the DSLV ETN: $46.18; stop-loss for the DSLV ETN $17.93
- Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $26.34; initial target price for the DUST ETF: $143.56; stop-loss for the DUST ETF $21.37
In case one wants to bet on junior mining stocks' prices (we do not suggest doing so – we think senior mining stocks are more predictable in the case of short-term trades – if one wants to do it anyway, we provide the details), here are the stop-loss details and initial target prices:
- GDXJ ETF: initial target price: $14.13; stop-loss: $45.31
- JDST ETF: initial target price: $417.04; stop-loss: $43.12
Long-term capital (core part of the portfolio; our opinion): No positions (in other words: cash)
Insurance capital (core part of the portfolio; our opinion): Full position
Please note that the in the trading section we describe the situation for the day that the alert is posted. In other words, it we are writing about a speculative position, it means that it is up-to-date on the day it was posted. We are also featuring the initial target prices, so that you can decide whether keeping a position on a given day is something that is in tune with your approach (some moves are too small for medium-term traders and some might appear too big for day-traders).
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 signs 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.
=====
Latest Free Trading Alerts:
On Wednesday, Moody’s downgraded China’s rating from Aa3 to A1. What does it mean for the gold market?
Moody’s Downgrade of China Rating and Gold
S&P 500 index gained 0.25% on Wednesday, as it got very close to May 16 all-time high. Will the uptrend accelerate towards new record highs? Or is this some blow-off high topping pattern before downward reversal?
S&P 500 At Record High Again, Will Stocks Accelerate Their Uptrend?
=====
Hand-picked precious-metals-related links:
Gold rises as Asian stocks, dollar slip after oil slump
Gold prices halt two-session skid as dollar stalls
=====
In other news:
Statement at the Conclusion of the IMF Mission to Ukraine
FBI investigating Kushner meetings, report says; House leader seeks more Comey documents
=====
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
