Gold & Silver Trading Alert: How Much Did Gold’s Rally Change?

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Briefly: In our opinion, a speculative short position (half) in gold, silver and mining stocks is justified from the risk/reward point of view.

Gold, mining stocks and – to a smaller extent, but still – silver rallied on Friday and some breakdowns were invalidated. Did the outlook for the precious metals market change?

In short, it seems to us that it hasn’t changed yet. We indeed saw invalidations of breakdowns but only in intra-day terms – there were no invalidations of them in the case of closing prices. Let’s take a closer look starting with gold (charts courtesy of http://stockcharts.com).

Short-term Gold price chart - Gold spot price

Gold moved above the rising thin resistance line (based on intra-day lows) but didn’t move above the upper, thick one (based on closing prices). Generally, the closing prices are more important, so the situation didn’t improve as much as one might think.

We recently wrote that the situation hadn’t become more bearish because of gold’s small breakdown (in intra-day terms) so invalidating it doesn’t improve it either.

Short-term Silver price chart - Silver spot price

We wrote a similar thing in the case of silver:

The breakdown below the lower of the red lines was very small and the move is definitely not confirmed. Consequently, just like it is the case with gold, the outlook is bearish, but not very bearish.

The unconfirmed breakdown was invalidated, so it didn’t change that much – the outlook didn’t deteriorate previously, so the cancellation of the move doesn’t improve it much either.

Please note that – just like it was the case in the gold market – there was no invalidation of the breakdown when we focus on the daily closing prices. Consequently, the situation didn’t improve much, if at all.

Long-term Silver price chart - Silver spot price

Please keep in mind that silver remains below the declining red resistance line and any rally here is likely to be stopped by this important line. Consequently, even if we see an additional move higher, it will likely only be a small one.

GDX - Market Vectors Gold Miners - Gold mining stocks

The outlook for mining stocks didn’t change based on Friday’s upswing because they remain below 2 important lines: the short-term rising support line and the medium-term declining resistance line. There was no breakout above the latter, so the outlook didn’t really improve.

Short-term US Dollar price chart - USD

The final chart for today is the one featuring the USD Index. Last week we wrote about it in the following way:

The USD Index has indeed invalidated the breakdowns and thus it’s likely to move much higher, likely above the March high. The implications for the precious metals sector are even more bearish than they were yesterday.

In short, the implications are still bearish. It seems likely that the bearish impact will be seen most visibly once the USD moves above its March high.

Summing up, our previous comments remain up-to-date and the outlook for the precious metals market remains bearish for the medium and short term but is not very bearish.

We will keep you – our subscribers – updated.

To summarize:

Trading capital (our opinion): Short (half position) position in gold, silver and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and initial (!) target prices:

Gold: initial target price: $1,115; stop-loss: $1,253, initial target price for the DGLD ETN: $87.00; stop loss for the DGLD ETN $63.78
Silver: initial target price: $15.10; stop-loss: $17.63, initial target price for the DSLV ETN: $67.81; stop loss for DSLV ETN $44.97
Mining stocks (price levels for the GDX ETN): initial target price: $16.63; stop-loss: $21.83, initial target price for the DUST ETN: $23.59; stop loss for the DUST ETN $12.23

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 price: $21.17; stop-loss: $27.31
JDST: initial target price: $14.35; stop-loss: $6.18

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.

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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