Gold & Silver Trading Alert: Miners Slide Despite Gold’s Rally – Should You Be Concerned?

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Briefly: In our opinion, short (full) speculative positions in gold, silver and mining stocks are justified from the risk/reward point of view.

The USD Index took a breather yesterday and gold moved more than $5 higher. This might seems like a bullish phenomenon until one notices that at the same time mining stocks (the GDX) declined by almost 1%. In the previous months similar performance meant that another major decline was looming – is this the case also this time?

Most likely yes. We saw multiple bearish signs and they were not subtle. Silver soared and plunged back down and now we’re seeing more and more signs of weakness and underperformance of mining stocks. It does seem likely that the next big wave down is beginning.

Today’s alert will feature just 2 charts as basically all the other charts that we included in yesterday’s alert feature no changes and their descriptions are up-to-date also today. Let’s start with gold (charts courtesy of http://stockcharts.com).

Short-term Gold price chart - Gold spot price

Gold moved higher yesterday, but… It’s a bearish sign anyway. The reason is that gold moved higher on relatively low volume, so the daily upswing seems to be just a correction and not a beginning of another move higher.

GDX - Market Vectors Gold Miners - Gold mining stocks

Mining stocks moved lower. The size of the volume is not really meaningful – the situation is not symmetrical as far as upswings and downswing are concerned. Low volume during upswings is generally bearish, but low volume during downswings is generally neutral.

The important thing is the decline itself and the fact that miners had an excellent reason to rally – and they didn’t. This is a very clear sign that lower prices should be expected, not higher ones.

All in all, we can summarize today’s alert just as we summarized yesterday’s issue:

Summing up, it seems quite likely that the corrective upswing in the precious metals is over and that we will see lower prices shortly. It seems that the profits from our short position will increase significantly in the coming weeks.

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

To summarize:

Trading capital (our opinion): Short position (full) position in gold, silver and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and initial (! – this means that reaching them doesn’t automatically close the position) target prices:

Gold: initial target price: $1,050; stop-loss: $1,213, initial target price for the DGLD ETN: $98.37; stop loss for the DGLD ETN $65.60
Silver: initial target price: $12.60; stop-loss: $16.73, initial target price for the DSLV ETN: $96.67; stop loss for DSLV ETN $40.28
Mining stocks (price levels for the GDX ETN): initial target price: $11.57; stop-loss: $17.33, initial target price for the DUST ETN: $41.10; stop loss for the DUST ETN $8.54

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: initial target price: $16.27; stop-loss: $24.33
JDST: initial target price: $16.98; stop-loss: $3.42

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.

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 sings 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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