Briefly: In our opinion no speculative positions in gold, silver and mining stocks are now justified from the risk/reward perspective. However, day-traders might consider a small speculative long position in silver.
The precious metals market moved lower last week, while the USD Index rallied, and what a rally that was! In just 2 days, the Dollar Index moved more than it had in the previous month. How significant is that? For the index itself - very. But how important is this major move for precious metals investors? Let’s take a closer look (charts courtesy of http://stockcharts.com.)
The USD Index actually managed to rally once again on Monday, even though it had already been overbought at that time. We have emphasized over and over again that long- and medium-term breakouts will be followed by surprises to the upside and that was one of them. The USD Index, however, moved to the Sep. 2013 high, which served as resistance. Our best guess is that the local top is either in, or very close to being in. The implications for the precious metals market are bullish for the short term, but they remain bearish for the medium term.
The situation in gold and silver didn’t change much yesterday, and what we wrote then remains up-to-date. The only change was visible for mining stocks.
Miners moved lower but they stopped declining after reaching the declining support line and the previous July and August lows. The move below the 50-day moving average is not confirmed at this time, and it seems that we will see some strength relatively soon. This is especially the case since the USD Index is likely to correct and trigger such a rally in the PM sector.
All in all, what we wrote previously remains up-to-date:
The above-mentioned corrective upswing in metals could provide a confirmation that the big decline is about to start – for instance if we see silver’s outperformance and/or miners move higher on tiny volume.
Summing up, the situation in the precious metals market still remains too unclear to open any positions in our view, but it seems that we won’t have to wait too long before things clarify and the risk/reward ratio becomes favorable enough to open a trading position. It seems that day-traders might want to take advantage of the specific way the silver market reacts during corrective upswings, but betting on silver’s bounce is not something that we can suggest to most traders.
To summarize:
Trading capital (our opinion): No positions
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.
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 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
Founder, Editor-in-chief
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