Briefly: In our opinion, long (full) speculative positions in gold, silver and mining stocks are justified from the risk/reward point of view.
Gold rallied sharply several days ago, but it failed to respond to new bullish signals in the most recent past. Is another turnaround just around the corner, and should we prepare ourselves and our portfolios for lower precious metals prices?
In our opinion, we are close to this point, but not yet at it. Let’s see why (charts courtesy of http://stockcharts.com).
Let’s start with the USD Index. It moved a bit higher, but not above the 38.2% Fibonacci retracement, so technically not much changed and our yesterday’s comments remain up-to-date:
At this time, the USD is at its 50% Fibonacci retracement level, but it seems more likely to us that it will decline some more instead of stopping now. The reason is that the support at about 96.6 created by combination of factors is much stronger than just the 50% Fibonacci retracement that was just reached.
The interesting, and seemingly bearish factor at this time is that metals and miners didn’t respond to the decline in the USD by rallying. This would normally be bearish if it weren’t for the reason that a few days ago the precious metals market delayed its response to the USD’s slide by a day or so. Consequently, just because we haven’t seen an immediate reaction, the situation is not necessarily bearish - at least not yet. Still, if the USD slides visibly below 97 and metals and miners still refuse to rally, we might need to close the current long positions. Again, it’s too early to do so now, in our opinion, as the jury is still out regarding the metals’ reaction or lack thereof to the USD’s decline.
Gold moved a bit lower on relatively low volume, which has little to no implications. Taken together with the fact that gold had previously rallied on higher volume, it has bullish implications for the very short term.
We saw very small sell signal from the Stochastic indicator, but it was too small to be considered meaningful.
Silver moved a bit lower on tiny volume and the last time we saw something like that was in mid-September and back then a sharp rally followed. Consequently, the very short-term implications are bullish despite silver being a little below the 20-day moving average.
Finally, mining stocks are not doing much, but they are not doing much above the short-term rising support line, which means there was no breakdown. Moreover miners have just moved lower on very low volume and similar actions in the past were followed by higher prices. It is particularly interesting that we saw the same kind of price-volume pattern in mid-August within a relatively similar rally – right before the final part of the rally.
Summing up, overall little changed yesterday (we saw some bullish signs from the price-volume links in silver and mining stocks, though) and our previous comments and outlook remain up-to-date. We think that the precious metals sector is likely to move even higher in the next few days, before turning south once again. We will most likely exit the current long positions before the Fed announces its interest rate decision next week, so please stay tuned. We are also moving our targets lower for gold and silver and we are changing our initial target price levels to final exit orders, which means that whenever one of these levels is reached, we think the entire long position should be closed without our additional confirmation. For instance, seeing the exit order level reached for gold would close the position for gold, silver and mining stocks. Targets for leveraged instruments are not binding, so if gold, silver, and GDX don’t move to their exit orders, but for instance NUGT does, it does not close the entire position (it closes only the position in this particular instrument – in this example: NUGT).
As always, we will keep you – our subscribers – updated.
To summarize:
Trading capital (our opinion): Long positions (full) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and exit (profit take) order levels:
- Gold: exit (profit take) level: $1,097; stop-loss: $1,028, exit (profit take) level for the UGLD ETN: $8.21; stop-loss for the UGLD ETN $6.70
- Silver: exit (profit take) level: $14.73; stop-loss: $13.26, exit (profit take) level for the USLV ETN: $12.00; stop-loss for USLV ETN $8.54
- Mining stocks (price levels for the GDX ETF): exit (profit take) level: $15.37; stop-loss: $12.57, exit (profit take) level for the NUGT ETF: $34.59; stop-loss for the NUGT ETF $18.91
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 exit (profit take) levels:
- GDXJ ETF: exit (profit take) level: $20.68; stop-loss: $17.76
- JNUG ETF: exit (profit take) level: $38.97; stop-loss: $24.83
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.
=====
Latest Free Trading Alerts:
We enter deeper into the process of the Fed’s tightening cycle. How exactly will the Fed normalize its interest rates and what does it mean for the U.S. economy and the gold market?
The Employment Situation Report has recently been an important factor for the gold market. Would you like to know why this was really the case? We invite you to read our today’s article and learn what is the real relationship between labor market indicators and the price of gold.
Does Employment Situation Report Move the Gold Price?
Yesterday, the U.S. Department of Labor reported that the number of initial jobless claims in the week ending December 4 rose by 13,000 to 282,000, missing analysts’ forecasts. As a result, the USD Index moved slightly lower, but did it change anything in the short-term picture of the euro?
Forex Trading Alert: EUR/USD – North or South?
S&P 500 index dropped below its last week's low yesterday. Will this short-term downtrend continue? Is holding short position justified?
Stock Trading Alert: Investors' Sentiment Worsens, New Downtrend or More Fluctuations?
=====
Hand-picked precious-metals-related links:
China to launch yuan gold benchmark in April
World's Highest-Cost Gold Miners Surge on Rand's Meltdown
=====
In other news:
Armed with new tools, Fed aims to avoid bumpy rates lift-off
Mohamed El-Erian: Here's the new paradigm for 2016
China yuan falls to lowest since August 2011 versus dollar
=====
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
