Gold & Silver Trading Alert: Miners’ Signal

tools spotlight

Briefly: In our opinion, full (150% of the regular full position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.

The precious metals market moved lower yesterday and the decline was once again particularly visible in the case of mining stocks. What does it imply for the following days?

In short, it emphasizes that the miners’ underperformance remains clearly in place and that the bearish outlook for the precious metals market definitely remains in place. Please take a look below for details (charts courtesy of http://stockcharts.com).

GDX - Market Vectors Gold Miners - Gold mining stocks

Mining stocks not only erased 2 days of gains in just one session – they even managed to close a bit below the May 18th closing price. Moreover, yesterday’s decline and the May 18th one were accompanied by volume levels that were higher than the volume that had accompanied the previous days’ upswings. The implications are clearly bearish.

Short-term Gold price chart - Gold spot price

Short-term Silver price chart - Silver spot price

Gold and silver declined as well, but the closing prices on the above charts appear to be a bit too high. Gold closed at about $1,251 and silver closed at about $17.05. The above changes may appear insignificant, but they actually are important as they change the daily candlestick. If we consider the above closing prices, the entire yesterday’s session can be viewed as a reversal (precisely: a bearish shooting star candlestick) that was seen in both metals. The volume was not huge, but still bigger than what we saw during previous daily upswings. The implications are bearish.

Before summarizing, we would like to let you know that we have recently published an article about the golden cross in gold, which was just seen. We didn’t include it in our alerts as that’s something that is not likely to have bullish implications or change the outlook in any way. You can access the mentioned article using this link.

Summing up, the USD Index has recently broken through significant support levels and it could still decline some more before turning up again. However, it doesn’t seem that adjusting the positions in the precious metals sector is justified at this time as neither gold nor (in particular) mining stocks want to react to these additional bearish signals. The only part of the precious metals market that managed to rally visibly this week was silver and since silver’s short-term outperformance (especially accompanied by the mining stocks’ underperformance) is a bearish sign, the outlook still remains bearish.

Yesterday’s significant underperformance of mining stocks and shooting star candlesticks in gold and silver serve as additional bearish confirmations.

Consequently, it could be the case that an additional decline in the USD Index (if it materializes at all) will be accompanied by only a relatively small move in precious metals that is followed by a big slide and trying to time this move might backfire.

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

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Short positions (150% of the full position) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and initial target price levels / profit-take orders:

Gold: exit-profit-take level: $1,063; stop-loss: $1,317; initial target price for the DGLD ETN: $81.88; stop-loss for the DGLD ETN $44.57
Silver: initial target price: $13.12; stop-loss: $19.22; initial target price for the DSLV ETN: $46.18; stop-loss for the DSLV ETN $17.93
Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $26.34; initial target price for the DUST ETF: $143.56; stop-loss for the DUST ETF $21.37

In case one wants to bet on junior mining stocks' prices (we do not suggest doing so – we think senior mining stocks are more predictable in the case of short-term trades – if one wants to do it anyway, we provide the details), here are the stop-loss details and initial target prices:

GDXJ ETF: initial target price: $14.13; stop-loss: $45.31
JDST ETF: initial target price: $417.04; stop-loss: $43.12

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

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

Please note that the in the trading section we describe the situation for the day that the alert is posted. In other words, it we are writing about a speculative position, it means that it is up-to-date on the day it was posted. We are also featuring the initial target prices, so that you can decide whether keeping a position on a given day is something that is in tune with your approach (some moves are too small for medium-term traders and some might appear too big for day-traders).

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.

=====

Latest Free Trading Alerts:

Yesterday, Trump published his proposed budget for 2018. What does it imply for the gold market?

Trump’s Budget Plan for 2018 and Gold

=====

Hand-picked precious-metals-related links:

PRECIOUS-Gold stays firm, Fed policy minutes in focus

India gold imports to plunge in festive months after pre-GST purchases

=====

In other news:

FOREX-Dollar holds above 6-1/2 month lows, Fed minutes in focus

China Hit by First Moody's Downgrade Since 1989 on Debt Risk