Gold & Silver Trading Alert: No Rally So Far – Is One Coming?

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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.

Gold, silver and mining stocks didn’t rally on Monday, but they didn’t decline either. Can a daily pause change something? Actually, it can, especially given the levels of volume.

In particular, the fact that gold moved a bit higher on low volume is bearish, especially in light of the confirmed breakdown that we’ve just seen. Let’s take a closer look (charts courtesy of http://stockcharts.com).

Short-term Gold price chart - Gold spot price

In the previous alert we wrote the following:

Gold managed to do just that – it closed the rising support/resistance line. We put an additional line on the chart (the one based on daily closing prices) and the breakdown was confirmed in case of both of them. The breakdown was confirmed by 3 consecutive daily closes and a weekly close. The implications are bearish.

Additionally, Thursday’s and Friday’s rally took place on relatively low volume, so it look like this move is just a correction within a bigger downtrend.

Yesterday, gold moved a bit higher on low volume. This is what a classic pause-within-a-trend would look like. Since gold is after a short-term breakdown and within a medium-term downtrend, the implications are bearish.

Moreover, the Stochastic indicator flashed a sell signal recently, which is another confirmation that lower prices are to be expected.

Short-term Silver price chart - Silver spot price

GDX - Market Vectors Gold Miners - Gold mining stocks

The situation didn’t change as far as silver and mining stocks are concerned and quoting our previous comments on the above chart seems appropriate:

Both: silver and miners moved more visibly higher than gold did, but it’s no wonder since they both declined much more sharply.

The volume in both cases was smaller than during the decline (not small on an absolute basis, though), but more importantly, the rally didn’t take silver and miners above the 38.2% Fibonacci retracement level. Therefore, technically, these upswings are just corrections of the previous decline.

Other than the above there’s actually little to say about the recent moves higher in silver and miners.

Overall, little changed in the precious metals market (and the signal from the gold market served as a bearish confirmation) and we can summarize today’s alert in the same way as we summarized yesterday’s issue:

Summing up, the situation and outlook didn’t change based on yesterday’s price move and the outlook remains bearish.

The analogy to the similar session (Oct. 15, 2014), gold’s underperformance relative to the USD Index, and other technical signs make us think (our opinion) that much lower prices are in the cards and that the short positions will become much more profitable than they already are (despite natural corrections along the way).

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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