Today’s alert is going to be short because of 2 reasons:
- The situation is developing as expected and our outlook remains unchanged
- There were basically no significant technical developments yesterday that we could comment on (maybe except miners underperformance and decline on significant volume, which confirm our bearish outlook anyway)
Our full short positions are already profitable (and it seems that posting the alert about doubling the size of the short position before the markets opened yesterday was a good idea), but we don’t think we are even close to the end of the decline, so we are keeping them intact.
All in all, we can summarize the situation just as we did yesterday:
Summing up, we believe that the outlook for the precious metals market deteriorated significantly yesterday. Gold moved to its previous major high, while silver and miners declined. The analogy to the only similar session (Oct. 15, 2014) makes us think that much lower prices are in the cards. In fact, taking all the signals that we saw yesterday into account makes us think that doubling the size of the short position is justified from the risk/reward point of view.
As we promised yesterday, we are providing targets and stop-loss details. Both are relatively far from the current price levels and the reason for this is that gold and the rest of the precious metals sector could still move higher temporarily (which is unlikely, though) and this move – perhaps to $1,200 or so – would not invalidate the bearish outlook. We are not focusing on day-trading here (even though we already have profits on this trade thanks to the last 2 hours of yesterday’s session and today’s pre-market decline in gold) – we are focusing on the next big downswing, which has a much better risk/reward ratio than betting on a short-term decline. Consequently, even if metals and miners move higher (again, which is unlikely) we are willing to accept the temporary move higher as it is very unlikely that it would result in a major rally. On the other hand, if the decline doesn’t start right away, it could start after a $1 “rally”, after a $2 “rally” or a $10 rally in gold or something along those lines – it seems much better to stay short even if that happens as the following action is likely to be well worth it and the risk of missing it would be too high.
As always, we will keep you – our subscribers – updated.
To summarize:
Trading capital (our opinion): Short position (full) 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.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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