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.
During yesterday’s session, the USD Index plunged once again and so did the general stock market, while gold rallied over $20 and we see a new major technical development that we’ve been expecting to see for some time now. What’s new and what changed?
Let’s start with gold (charts courtesy of http://stockcharts.com).
In yesterday’s intra-day alert, we wrote the following:
So, nothing really changed in silver and miners. It does appear to have changed in gold, but… Only until one actually looks at the gold chart. Gold was the only part of the precious metals market that didn’t move to some kind of strong resistance - until today. On the gold chart that we featured in today’s alert (as well as in the previous ones) you can see a rising red support line based on the December 2016 and March 2017 bottoms. This line was broken in early May and it has never been verified as resistance again, until today. Gold moved practically right to it and stopped. Is the rally over? Now, that gold, silver and mining stocks reached their strong resistance levels it’s certainly likely that this is the case or that it will be the case shortly.
We updated the mentioned rising red resistance line by drawing 2 lines instead – one based on the intra-day lows and the other based on the daily closing prices. Gold moved and closed a little above the lower of the lines (the less significant one; based on the intra-day bottoms) and didn’t break the upper one based on the daily closing prices.
All in all, yesterday’s rally is not a true breakout, but rather a verification of a breakdown.
The above long-term chart helps to put things into proper perspective.
First of all, gold’s upswing remains in tune with the late-2016 decline. Please note that the orange lines represent the pace of the decline based on 2 important tops – each analogy is important and as long as gold remains between these lines or deviates from them in just a minor way, then the 2 declines will remain similar. Based on this analogy gold is likely to move close to its 2015 lows sometime this summer.
Secondly, please note that gold is not only verifying the breakdown below the rising support line (as seen on the previous chart), but also below the 60-week moving average. There was no big move above it (gold remains below it at the moment of writing these words), so the proximity of such an important resistance is a bearish factor.
In yesterday’s alert, we wrote that silver remained below the resistance levels: the March lows and the 61.8% Fibonacci retracement level, so technically nothing had changed based on the previous day’s price change. Silver moved above the March lows and the 61.8% Fibonacci retracement only insignificantly and at the moment of writing these words it’s already back below the mentioned levels (at $16.77), so the tiny breakout is already invalidated. Again, nothing really changed technically and the outlook remains bearish.
To be precise, something was indeed seen in the silver market – a daily reversal on significant volume, which is not a bullish factor, but a bearish one.
The same goes for mining stocks. The HUI Index didn’t invalidate the breakdown below the key (upper one, based on the daily closing prices) rising blue resistance line – even though the USD Index declined so significantly and gold rallied $20, and thus the outlook didn’t become more bullish than it had been previously – if any change is to be discussed, then it would be an increase in the bearishness due to the miners’ lack of reaction to the USD’s daily slide.
The interesting thing to watch yesterday was the intra-day performance of mining stocks compared to the price of gold. Mining stocks moved higher along with gold (not rallying as significantly, but still), but when gold gave away only a part of its gains miners reacted by declining more significantly. As gold moved higher – and above the previous intra-day high – miners also moved higher, but not above the previous intra-day high. This action took place a few times and it shows how reluctant mining stocks are to react to positive developments in the gold market.
All in all, even though a lot seems to have happened, quite little changed. So… Why did we title today’s alert “New Important Technical Development”?
Palladium finally broke below its rising wedge pattern. This breakdown will be confirmed once we see the weekly close below it, but the move is already important as we haven’t seen anything like that so far this year. Big moves in palladium and big moves in the rest of the precious metals sector tend to take place simultaneously and the breakdown below the big wedge pattern (based on almost a year of price moves) is definitely likely to trigger a major decline. Consequently, the implications for the entire precious metals sector are bearish.
Summing up, the outlook for the precious metals market remains bearish and the very weak reaction to the USD’s daily slide serves as a bearish sign even though the latter may appear as something bullish for PMs. Silver’s reversal on big volume and major (unconfirmed, but still) breakdown in the price of palladium serve as additional bearish confirmations.
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:
The abrupt firing of Comey last week triggered political turmoil in Washington. What does it imply for the gold market?
S&P 500 index lost 1.8% on Wednesday, following a gap down opening. Is this a new downtrend or just downward correction? Will it continue lower today? Is holding short position still justified?
Stock Trading Alert: Sharp Downward Reversal, Will Stocks Continue Lower?
=====
Hand-picked precious-metals-related links:
Gold's Haven Status Refreshed as Trump's Turmoil Wounds Stocks
First responsible, conflict-free artisanal gold supply chain operational in Congo
=====
In other news:
Exclusive: Trump campaign had at least 18 undisclosed contacts with Russians: sources
Global Stocks Plunge After U.S. Rout as Bonds Gain: Markets Wrap
Even nuanced shift in ECB communication needs great caution: minutes
U.K.'s May Commits Tories to Hard Brexit Stance in Manifesto
Japan racks up longest growth streak in over a decade
=====
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
