Gold & Silver Trading Alert: Is Gold’s Decline Over?

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Briefly: In our opinion speculative short positions (full) in gold, silver and mining stocks are justified from the risk/reward perspective.

While yesterday’s alert was quite long as we had a lot to comment on, today’s one will be brief as there’s not much new for us to discuss.

In yesterday’s alert we wrote that we could see a small move higher because some support levels had been reached. That’s exactly what happened. The nature of the move suggests that it was a counter-trend move and that we can expect the declines to continue shortly (not necessarily immediately, though).

Gold, silver and mining stock charts show the same action, so we’ll comment on them simultaneously (charts courtesy of http://stockcharts.com).

Short-term Gold price chart - Gold spot price

Short-term Silver price chart - SLV ETF - iShares Silver Trust

GDX - Market Vectors Gold Miners - Gold mining stocks

All 3 charts show that Monday’s rally was small and it took place on low volume. This kind of action is something that we see during corrective upswings within declines and it confirms the bearish outlook.

Generally, all that we wrote yesterday remains up-to-date and we can summarize the situation in the same way as we summarized it yesterday:

Summing up, quite a lot happened on Friday, but not that much changed as far as the outlook is concerned. The medium-term trend most likely remains down, but there is still a possibility that the recent $70 (or so) decline in gold is a verification of the previous breakout. Consequently, we are not adjusting the long-term investment capital – we are keeping half (and only half) of it in the precious metals sector. In speculative terms, it seems that the profits on the current short positions will become even bigger, so we’re keeping them intact.

As always, we’ll keep you – our subscribers – informed.

To summarize:

Trading capital (our opinion): Short positions (full) in gold, silver and mining stocks with the following stop-loss orders and initial (!) target prices:

Gold: initial target level: $1,180; stop-loss: $1,283, initial target level for the DGLD ETN: $75.23; stop loss for the DGLD ETN $58.55
Silver: initial target level: $15.70 ; stop-loss: $17.93, initial target level for the DSLV ETN: $66.25 ; stop loss for DSLV ETN $43.84
Mining stocks (price levels for the GDX ETN): initial target level: $18.40 ; stop-loss: $23.57, initial target level for the DUST ETN: $18.99 ; stop loss for the DUST ETN $9.21

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 level: $23.37; stop-loss: $28.87
JDST: initial target level: $12.30 ; stop-loss: $6.73

Long-term capital (our opinion): Half positions in gold, half positions in silver, half position in platinum and half position in mining stocks.

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 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.

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