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

In our previous Gold & Silver Trading Alert we have commented in great detail on the situation in the currency sector by reviewing the outlook for the USD Index from various perspectives. These comments remain up-to-date, so today we will focus on the gold market and the most recent performance (or lack thereof) in mining stocks.

Let’s start with gold (charts courtesy of http://stockcharts.com).

What we had written previously about the long-term chart is once again an appropriate description of what happened recently (as not much changed on Friday):

(…) we can expect gold to move higher, at least until it reaches the combination of resistance lines. The lines intersect at approximately $1,260, and we can’t rule out a temporary move above this level (just like it was the case in the first week of July). At this time it seems likely that most of the rally is behind us but that it’s not completely over just yet.

In our opinion, it’s justified, from the risk/reward point of view, to place exit orders for the speculative long positions at the previously-mentioned initial target levels for silver and mining stocks, and place an exit order for gold at $1,257 (in other words, we aim to make the current profits from this trade even bigger).

Now, in the case gold moves to $1,257, it would seem a good idea to exit long positions in silver and mining stocks regardless of what levels they are at. The reason is that from that perspective betting on higher prices would simply seem too risky given the smaller upside potential (in the short term).

From the short-term perspective, there’s not much more than we can say that we haven’t said above.

Namely, the last 2 trading days seem to be a pause within a short-term upswing.

If we take a look at the Australian perspective, we’ll see that the target area was just reached once again. Still, there has been no fake breakout just yet, so the final top doesn’t have to be in just yet.

So far, the short-term picture looks bullish. However, there is something that probably makes you concerned.

Mining stocks just declined on relatively significant volume, even tough gold didn’t really go down and the general stock market actually rallied significantly. If main stock indices had fallen, then we would not view miners’ performance as clear underperformance – but we do, as stocks rallied.

Is this a sign that the final top is in? It’s unclear at this moment – it was just a single session when miners declined so badly without a simultaneous decline in other stocks. It is definitely a bearish sign and it’s too significant too be ignored.

Summing up, while the situation in USD Index and in gold and silver suggests higher prices in the short term (not much higher, though), the bearish signal from the mining stocks makes the overall short-term outlook for the precious metals sector less bullish than was the case previously.

Consequently, in our opinion closing half of the long position in the entire sector is a good idea now. Gold has rallied since we opened the long positions and so has silver. Mining stocks haven’t performed as well, but, overall, closing half of the long positions at this point means taking profits off the table. What’s next? We’ll be paying close attention to the events as they unfold and will let you – our subscribers - know when we think further adjustments (either taking the rest of the profits off the table, or adding to / changing positions) are justified from the risk/reward point of view.

To summarize:

Trading capital (our opinion):

It seems that having speculative (half) long positions in gold, silver and mining stocks is a good idea:

• Gold: stop-loss: $1,172, exit order: $1,257, stop loss for the UGLD ETF $11.29, exit order for the UGLD ETF $13.75
• Silver: stop-loss: $16.47, exit order: $18.07, stop loss for USLV ETF $23.94, initial target price for the USLV ETF $31.73
• Mining stocks (price levels for the GDX ETF): stop-loss: $19.94, exit order: $23.37, stop loss for the NUGT ETF $18.25, initial target price for the NUGT ETF $28.99,

In case one wants to bet on higher junior mining stock ETFs, here are the stop-loss details and initial target prices:

• GDXJ stop-loss: $28.40, exit order: $37.14
• JNUG stop-loss: $6.19, exit order: $16.34

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.

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 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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