In short: No changes: small (half) short position in gold, silver, and mining stocks.

In Monday’s alert, we provided detailed reasoning behind our decision to open the short position in the precious metals sector. Basically, points made in it remain up-to-date, but - just as it was the case yesterday - there are a few charts that we would like to comment on.

Yesterday, we commented on the long-term gold chart and since the situation on it didn’t change during yesterday’s session, today we will focus on the medium-term one instead (charts courtesy of http://stockcharts.com.)

Gold moved temporarily above the declining medium-term resistance line on Monday but then quickly reversed course and the breakout was invalidated before the session was over. The previous move above the short-term declining resistance line was also invalidated. These signals still put bearish pressure on gold prices, even though gold itself didn’t decline a lot on Tuesday.

All this means that the medium-term trend remains down and it will remain down unless we see a spectacular breakout to the upside, and we don’t expect to see one soon.

Yesterday, we commented on the HUI Index in the following way:

Gold stocks declined visibly on Monday, but are not yet back below their declining support/resistance line. This means that the outlook hasn’t become much more bearish than it was based on Friday’s closing prices. It’s more bearish now, but it will be the decisive move back below the resistance that will make the situation bearish enough for us to suggest adding to the speculative short positions.

Gold stocks actually moved a bit higher yesterday and there was no move below the resistance/support line. In other words, the outlook didn’t deteriorate and adding to the currently open short positions is not justified.

Meanwhile, silver continues to decline and there are no changes in case of the signals coming from this market – they remain bearish.

The final chart that we would like to feature today is palladium.

We have previously commented on palladium’s usefulness as a short-term indicator for the entire precious metals sector, and at this time we would like to emphasize that the bearish signal coming from it just got stronger. Palladium moved decisively lower this week, which had previously meant that the rest of the sector would follow. From this perspective, the situation has deteriorated.

Summing up, taking all of the above into account (a small improvement in gold stocks and a bearish signal from palladium, with other markets providing the same signals as yesterday), we arrive at the same conclusion, at which we arrived yesterday – namely, that it’s a good idea to use a small part of your speculative capital to trade the (likely) coming decline in precious metals. If we see a confirmation of the bearish case (for instance, a decline on strong volume), we will likely suggest adding to the position. Naturally, in case of an invalidation of the bearish outlook, we will keep you informed as well. For now, this short position is already profitable.

To summarize:

Trading capital: Short position (half) in: gold, silver and mining stocks. We are planning to profit on a significant downswing, so the stop-loss orders will not be that close (however, if something invalidates the bearish outlook, we will let you know ASAP, even if stop-loss orders are not reached).

Stop-loss orders for the short position:

• Gold: $1,307
• Silver: $21.20
• GDX ETF: $27.20

Long-term capital: No positions.

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 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