Briefly: In our opinion, a speculative short position (half) in gold, silver and mining stocks is justified from the risk/reward point of view.
Precious metals declined once again yesterday. The move was particularly visible in silver. Is the white metal telling us something? We think that it is, but the message is not that straightforward.
Before we move to silver, let’s take a look at gold (charts courtesy of http://stockcharts.com).
Gold had declined on relatively low volume on Tuesday, but the volume during Wednesday’s downswing was bigger, so the direction of the move is somewhat confirmed. Gold closed below the 38.2% Fibonacci retracement level based on the Jan.-Mar. decline and it continues to move lower also today (having declined $7 at the moment of writing these words). The outlook remains bearish and it seems that re-opening short positions based on the April 6 session was a good idea.
The white metal declined on significant volume yesterday, which is a bearish sign. However, the silver’s decline (along with today’s pre-market move lower to $16.30) didn’t result in a breakdown below the lower of the declining red lines. These lines are important because they are the borders of a possible flag pattern. The “problem” with this pattern is that it’s a sign of a continuation of the move preceding it, which in this case, was up. If we see a move above the upper of these lines, a further rally will become probable. However, that’s not what seems likely to happen. We think that the likely outcome is that we will see a confirmed breakdown below this level and it will be this event that will make further declines more likely. We will consider doubling the size of the short position at that time.
Mining stocks moved lower on relatively low volume, which means that the situation is bearish but not very bearish. Other than that, there’s not much new that we can say about the above chart – the outlook simply remains bearish.
The last, but not the least important, chart for today is the one from our latest tool – the Fractalyzer (please note that you currently have access to it as one of two 6th-anniversary gifts that you received from us – on a side note, if you haven’t contacted us regarding the second gift yet, please do so).
The above chart features the recent signals and the projected price path for gold stocks. Fractalyzer has been bearish (it’s an investment tool, but from an analytical point of view, one might think about it as a separate analyst and you can learn more about it and see how it works in the Fractalyzer video) on the HUI Index since early February and it currently points to lower prices as well. Please note that the price path is updated on each trading day, so just because at this time we see that the decline is likely to pause in the middle of April, it doesn’t mean that the Fractalyzer will be making the same price prediction tomorrow or next week (again, just like an analyst, it can either keep everything unchanged, change its prediction slightly or even in a meaningful way).
The current price path in the case of silver points to much lower prices but it points to higher prices in the case of gold, so overall the indications for the precious metals sector are bearish, but not very bearish.
Summing up, our yesterday’s and Tuesday’s comments remain up-to-date and the outlook for the precious metals market remains bearish for the medium and short term but has not become very bearish just yet.
We will keep you – our subscribers – updated.
To summarize:
Trading capital (our opinion): Short (half position) position in gold, silver and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and initial (!) target prices:
- Gold: initial target price: $1,115; stop-loss: $1,253, initial target price for the DGLD ETN: $87.00; stop loss for the DGLD ETN $63.78
- Silver: initial target price: $15.10; stop-loss: $17.63, initial target price for the DSLV ETN: $67.81; stop loss for DSLV ETN $44.97
- Mining stocks (price levels for the GDX ETN): initial target price: $16.63; stop-loss: $21.83, initial target price for the DUST ETN: $23.59; stop loss for the DUST ETN $12.23
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 price: $21.17; stop-loss: $27.31
- JDST: initial target price: $14.35; stop-loss: $6.18
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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