Gold & Silver Trading Alert: Miners Rally Once Again

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

2 things happened yesterday that can have some implications for future precious metals prices: miners moved higher (GDX broke above its recent highs) and the second thing is that the upswing materialized on higher USD values. Is the rally imminent?

In short, no, but the short-term outlook did become more bullish based on what happened yesterday. Let’s take a closer look (charts courtesy of http://stockcharts.com).

GDX - Market Vectors Gold Miners - Gold mining stocks

In yesterday’s alert we wrote the following:

On the short-term chart we see that in the case of the GDX ETF there was no breakout even above this year’s highs and the volume that accompanied Friday’s upswing was rather limited. However, the fact that breakdowns below both rising support lines were invalidated is bullish.

Based on yesterday’s closing prices, we saw a breakout, which is bullish. The volume was not huge, but it was not low either and the size of the breakout was rather small, which means that the breakout is definitely not confirmed at this time. Consequently, the implications thereof are only a little bullish.

As far as the second mentioned development is concerned, it is indeed usually a bullish sign to see metals and miners move higher along with the USD Index, but the move in the latter is already being invalidated today and the rally hasn’t continued (gold is up only $4 at the moment of writing these words – far from a real “rally”). Consequently, the bullish signal of yesterday’s session seems to be almost (after all, gold is not declining so far today) balanced by today’s action and the overall implications are only a little bullish.

Summing up, the short-term outlook for the precious metals sector improved a bit based on yesterday’s price action, but it didn’t invalidate the medium-term bearish signals described yesterday. The implications are that the medium-term outlook remains bearish, but the situation is unclear with a bullish bias as far as short term is concerned. We’ll keep monitoring the situation and once we see more bearish (or bullish) confirmations, we’ll let you know. Until that time, it seems that staying on the sidelines with the speculative capital is justified from the risk to reward point of view.

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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