Gold & Silver Trading Alert: Miners Leading the Way… Up?

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Briefly: In our opinion, no speculative positions in gold, silver and mining stocks are justified from the risk/reward perspective.

Quite a few rallies in the recent months were preceded by the mining stocks’ outperformance relative to gold and we saw the same kind of phenomenon yesterday – GDX rallied while gold declined. Is the bottom in?

Let’s take a look at the mining stocks’ chart - other charts don’t feature important changes from what we described previously (charts courtesy of http://stockcharts.com).

GDX - Market Vectors Gold Miners - Gold mining stocks

Miners indeed moved higher yesterday, which was nothing unexpected. In yesterday’s alert we explained which technical phenomenon made it quite possible:

The volume was not just low – it was extremely low [on Monday]. Can it tell us anything? It suggests extra caution as metals and miners could be on the verge of a sudden upswing - that’s what happened in the previous months. [as you can see on the above chart]

Mining stocks declined [on Tuesday], but the volume was low once again, which means that the above comments remain up-to-date. Miners could still rally on a very temporary basis before the big decline resumes.

Moreover, GDX moved to the rising support line, which could trigger another rally before the big decline starts.

Miners had a good reason to decline – gold declined yesterday. However, they didn’t. Even the lack of movement would have bullish implications as miners would outperform in this case. The latter did more than that – miners rallied. Moreover, the volume that accompanied the upswing was bigger than what we’ve seen so far this week, which suggests that the move was not accidental.

The general stock market rallied as well, but the rally was not huge enough to explain – by itself – the strength seen in mining stocks relative to gold. Consequently, we view it as a bullish signal for the very short term. The emphasis is important, because this factor alone is not a game-changer in our view. There are many other factors that need to be considered and quite a few of them have bearish implications.

So, what does yesterday’s strength in the mining stocks imply? That we could see higher prices in the precious metals sector in the next several days, but nothing more. In particular, it doesn’t invalidate the bearish outlook for the medium term.

Summing up, it’s quite likely that the precious metals sector is close to starting another big decline, but it’s also likely that another short-term rally could be seen beforehand. The opportunity in the precious metals sector will likely present itself shortly, just like it is already the case with crude oil, forex and stocks (we currently have profitable positions in all of them).

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

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): No positions

Long-term capital (core part of the portfolio; our opinion): No positions

Insurance capital (core part of the portfolio; our opinion): Full position

Plus, you might want to read why our stop-loss orders are usually relatively far from the current price.

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 signs 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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