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

Yesterday, we wrote that even if we see an upward correction, it will likely not be anything more than just that – a correction. It turned out that we saw just that – a daily corrective upswing. Let’s take a closer look (charts courtesy of http://stockcharts.com.)

Yesterday we also wrote that even if we see a move to $25 or so in the coming days, it will still look like a correction. And it does. The last few days formed the ABC pattern (a zigzag). That’s one of the common ways for assets to correct in general and it’s seen quite often in case of precious metals mining stocks.

The volume was quite significant (not huge, though) on Wednesday, but that doesn’t necessarily confirm the bullish case just yet. Please note that a similar rally was seen after a similar decline in mid-November 2013. That was just the final step before the decline really began. Interestingly, the GDX ETF is now close to where it was in mid-November 2013.

Gold (the GLD ETF in this case) moved higher, but the accompanying volume was tiny. That’s generally a bearish sign. We saw something similar before each downswing in Nov 2013 and on many other occasions. Based on this price/volume combination, we are happy that we haven’t closed the short positions in the precious metals sector even though it a correction of some sort was quite likely. After such action, we could see a much lower open and we would have to re-enter the short positions at less favorable prices. It seems that keeping the short positions opened is justified from the risk/reward perspective.

Silver moved higher more visibly, and on more visible volume, but that’s not really encouraging for two reasons:

• Silver has been moving sharply higher right before taking a plunge many times in the past (like in mid-March and late October 2013),
• Silver is almost right at its cyclical turning point, which means that since the preceding move was up, the implications are bearish.

There’s one more chart that suggests that the events of the last few days were just a correction – the Euro Index:

The Euro Index moved higher this week but then declined once again. The index moved to the 2013 highs but failed to move back above them. Consequently, the breakdown below them was somewhat verified. The decline here is still relatively small, but it was visible enough to confirm that a visible move lower in the index translates into lower precious metals values. Consequently, if the decline in the euro continues, we will likely see further declines also in metals and miners. It is likely to be seen as the long-term trend remains down – the declining resistance line stopped the rally.

To summarize:

Trading capital (our opinion): Short positions: gold (half), silver (half) and (full) mining stocks.

Stop-loss details:

• Gold: $1,342
• Silver: $20.85
• GDX ETF: $25.6

Long-term capital: No positions.

Insurance capital: Full position.

You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.

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