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

Gold moved lower yesterday, but miners and silver declined quite significantly. Was this just a one-day pause within the short-term rally or is the medium-term decline ready to continue?

In our opinion the short-term situation deteriorated but is still quite unclear. We still don’t rule out another short-term move higher, but at the same time we think we are not planning to alter our short positions based on this short-term uncertainty, because the medium-term picture remains very bearish.

Let’s take a look at the charts (charts courtesy of http://stockcharts.com).

In yesterday’s alert we wrote the following:

Invalidations of breakouts tend to be even more important than breakouts themselves, so at this time the implications of yesterday’s session and what we’re seeing today is not bullish, but insignificantly bearish. It will be significantly bearish if gold closes the day (and the week) below the declining resistance line.

Gold moved a bit higher in the following part of the session, but it finally closed the day and the week below the mentioned resistance line. Consequently, the breakout was invalidated and the implications are bearish.

Yesterday’s daily slide confirmed the invalidation and made the above chart a bit more bearish, but the decline was not significant enough and the accompanying volume was not big enough to strongly indicate that the short-term rally is very likely over.

Silver, however, moved lower quite sharply and given the similarity between the recent day-to-day price swings and the previous 2 top patterns it does indeed seem likely that the next big downswing is already underway.

What about gold stocks and silver stocks?

Miners moved significantly (almost 5%) lower, practically erasing the previous daily gains. The decline took place on relatively high volume, which serves as a bearish confirmation. We can say the same about the miners’ performance relative to gold – miners are weak once again and this does not bode well for the entire precious metals sector in the coming days and weeks.

Other than the above, there’s little that new that we can comment on today.

Summing up, the situation in gold charts didn’t change much, but it deteriorated significantly in case of silver and mining stocks. It seems more likely than not that the next major downswing is already underway, but if we saw additional short-term strength in the following days, it would not shock us (and it would likely not make us change our outlook on the precious metals sector). It seems that the profits from our short position will increase significantly in the coming weeks, but not necessarily days (it seems likely, though).

As always, we will keep you – our subscribers – updated.

To summarize:

Trading capital (our opinion): Short position (full) position in gold, silver and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and initial (! – this means that reaching them doesn’t automatically close the position) target prices:

• Gold: initial target price: $1,050; stop-loss: $1,213, initial target price for the DGLD ETN: $98.37; stop loss for the DGLD ETN $65.60
• Silver: initial target price: $12.60; stop-loss: $16.73, initial target price for the DSLV ETN: $96.67; stop loss for DSLV ETN $40.28
• Mining stocks (price levels for the GDX ETN): initial target price: $11.57; stop-loss: $17.33, initial target price for the DUST ETN: $41.10; stop loss for the DUST ETN $8.54

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 initial target prices:

• GDXJ: initial target price: $16.27; stop-loss: $24.33
• JDST: initial target price: $16.98; stop-loss: $3.42

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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Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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