Briefly: In our opinion no speculative positions are justified from the risk/reward perspective.

The precious metals market moved lower yesterday, but was that enough to make the situation much more bearish? Let’s take a look (charts courtesy of http://stockcharts.com).

Much of what we wrote previously remains up-to-date:

(…) the session itself was very specific. We marked similar sessions (similar volatility + significant volume) on the above chart with orange rectangles. It turned out that these sessions didn’t necessarily mark the final bottoms, but they have practically always (at least recently) been followed by short-term rallies (very short-term in early December 2013). Consequently, while the medium-term trend remains down, the short-term implications are bullish.

(…) we also saw a move below the previous April low and the immediate invalidation thereof, which by itself is also a bullish sign.

Gold has indeed moved higher, but it didn’t move above the declining resistance line, so the short-term outlook here is rather mixed. We have already seen a short-term rally that was possible based on the above-mentioned comments, so this move might be over or close to being over.

There still has been no breakout above the declining resistance line and since the trend remains down, we should expect more declines. The volume during yesterday’s declines was slightly lower than in the previous days but it was not low enough to have bullish implications.

Yesterday we wrote the following regarding the GDX:GLD ratio:

Mining stocks to gold ratio moved higher on Friday after a daily decline and overall closed slightly lower than it had closed on Wednesday. We don’t view this action as a breakout just yet.

Even if there had been a breakout, it would have been invalidated yesterday. At this time, the trend remains clearly down.

Interestingly, mining stocks themselves haven’t invalidated the breakout. They moved lower, to the declining support/resistance line, and moved slightly back up. The entire move took place on volume that was slightly lower than what we saw on Friday, which is a slightly bullish sign.

At this time the breakout is still unconfirmed, so we don’t view the situation as overly bullish.

Here’s another reason why.

The Euro Index is about to touch the declining resistance line once again, and the last 2 times that this happened, we saw local tops in the precious metals sector. With no underperformance or outperformance of gold relative to the currency indices, we can expect the same to happen also this time. The implications at this time are bearish.

The bottom line is that the situation in the precious metals market remains too unclear to open any speculative position and the medium-term trend remains down. The situation in gold is unclear, unclear with a bullish bias for silver and mining stocks, bullish for platinum, but with bearish indications from the USD Index and the juniors to other stocks ratio. "When in doubt, stay out" – and so we do.

To summarize:

Trading capital (our opinion): No positions

Long-term capital: No positions

Insurance capital: Full position

Please note that a full speculative position doesn’t mean using all of the speculative capital for this trade. 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

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