Briefly: In our opinion no speculative positions in gold, silver and mining stocks are now justified from the risk/reward perspective. However, day-traders might consider a small speculative long position in silver.

The precious metals sector continues to act as we expected it to. It moved slightly higher after declining in tune with its medium-term trend. Is the counter-trend upswing over and will declines follow immediately? Is it high time to get out of the precious metals investments or the time to start backing up the truck with gold bars? Let’s take a closer look (charts courtesy of http://stockcharts.com.)

We will once again start with the USD Index, which provides the key part to the answer to the above question. The corrective upswing in the precious metals is likely not over, because the corrective downswing in the USD Index doesn’t seem to be over. In fact, it hasn’t started yet.

What we wrote previously remains up-to-date:

We have emphasized over and over again that long- and medium-term breakouts will be followed by surprises to the upside and that was one of them. The USD Index, however, moved to the Sep. 2013 high, which served as resistance. Our best guess is that the local top is either in, or very close to being in. The implications for the precious metals market are bullish for the short term, but they remain bearish for the medium term.

Gold, or more precisely the GLD ETF moved higher yesterday, but the move materialized on low volume. This tells us 2 things. Firstly, gold is likely correcting the downswing – not starting a new rally (low volume). Secondly, gold is very eager to move higher in the short term – it has done so even without the dollar’s help.

How high can gold go during this upswing? It seems likely that gold will correct to one of the classic Fibonacci retracement levels. The lower one is at the same price level as the 300-day moving average, and the upper one is very close to this month’s high. We’ll be watching the markets for bearish confirmations once we see gold close to these levels.

We can see the same on the charts featuring silver and mining stocks ETFs. The rally is tiny so far, but the sector showed some kind of strength without help from the declining USD. The short-term outlook is bullish, but the medium-term one remains bearish.

At this time it seems rather unclear how high silver and miners will go during this rally, so we think that focusing on gold and its target area will be particularly useful as gold, silver and mining stocks are likely to top at the same time.

All in all, what we wrote previously remains up-to-date:

The above-mentioned corrective upswing in metals could provide a confirmation that the big decline is about to start – for instance if we see silver’s outperformance and/or miners move higher on tiny volume.

Summing up, the situation in the precious metals market still remains too unclear to open any positions in our view, but it seems that we won’t have to wait too long before things clarify and the risk/reward ratio becomes favorable enough to open a trading position. It seems that day-traders might want to take advantage of the specific way the silver market reacts during corrective upswings, but betting on silver’s bounce is not something that we can suggest to most traders.

To summarize:

Trading capital (our opinion): No positions

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