Gold & Silver Trading Alert: No New High for Silver

tools spotlight

Briefly: In our opinion speculative short positions (full) are currently justified from the risk/reward point of view.

Gold closed at a new high and so did mining stocks, but silver didn’t – can this underperformance tell us something about the future prices of metals

At times, silver’s outperformance or underperformance can have meaningful implications, but it doesn’t seem that it was the case yesterday. Silver moved only a little lower (1 cent) whereas gold and miners moved only a little higher. Gold moved $8.50 higher, which is not much either (and it is already $10 lower in today’s pre-market trading). The size of the phenomenon was tiny and, consequently, it has no implications for future prices. In general, nothing really changed on the charts, so what we wrote yesterday about them, remains up-to-date.

What we would like to emphasize is that we are likely witnessing the turnaround triggered by decreasing tensions. The latter reached maximum when the votes were being counted and now they have started to decrease. In the previous cases (during the Crimean and Greek votes) gold gained on the day that results were released and declined on the next day. It seems that since at this time what’s at stake seems bigger (in the market’s opinion - based on the price moves), the investors needed a bit more time to really digest the news. Now that it’s (likely) done, the pre-Brexit vote trend can resume – and that trend has been down. So, in short, just because gold didn’t slide yesterday, this doesn’t invalidate the bearish analogy to previous major European votes.

Summing up, since nothing really changed yesterday, the bearish outlook remains intact. The reaction to the Brexit vote and its result was profound on a day-to-day basis, but when viewed from a bigger perspective, it didn’t change much as far as the outlook for the precious metals market is concerned and it remains bearish (especially in light of the lack of bullish confirmations from silver and mining stocks). Moreover, the analogy to the results of the previous important European votes suggests lower prices of precious metals in the coming weeks as tensions ease.

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

To summarize:

Trading capital (our opinion): Short positions (full position) in gold, silver, and mining stocks are justified from the risk/reward perspective with the following entry prices, stop-loss orders and initial target price levels:

Gold: initial target price: $1,006; stop-loss: $1,423, initial target price for the DGLD ETN: $86.30; stop-loss for the DGLD ETN $44.35
Silver: initial target price: $12.13; stop-loss: $18.67, initial target price for the DSLV ETN: $65.88; stop-loss for the DSLV ETN $24.16
Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $30.77, initial target price for the DUST ETF: $47.90; stop-loss for the DUST ETF $3.62

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: $50.70
JDST ETF: initial target price: $61.74; stop-loss: $1.97

Long-term capital (our opinion): No positions

Insurance capital (our opinion): Full position

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 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.

=====

Latest Free Trading Alerts:

Because of the FOMC meeting and media insanity about the Brexit vote, we did not have time to analyze the recent U.S. economic data. What does it mean for the gold market?

Weak U.S. Industrial Production and Gold

=====

Hand-picked precious-metals-related links:

CME Group to raise margins for Gold from $4,950 to $6,050

Gold's upside from here is limited, says Goldman's Currie

Gold is sending a dark sign that 'almost everything has changed' in the market

Why President Donald Trump Would Be Bad for Silver Miners

Too soon to tell what Brexit means for SA mining

Brexit gives AngloGold, Gold Fields cash-flow lift, Moody’s says

AngloGold Plans to Buy Back $475 Million of High-Yield Bonds

History Not On Side Of 2016’s ETF ‘Gold Rush’

=====