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

The rate hike is now a fact and the precious metals market didn’t plunge right after the hike was announced. Is the rate increase not relevant? Can gold rally despite it?

In short, we think that it is relevant, but the very short term might or might not be enough for the market to truly react to this piece of news. There’s been a lot of talk about how the increase in the rates could affect the gold market and investors and traders simply could be confused about the outlook and additional time is required (as the dust settles down) before they can realize that nothing really changed regarding the medium term now that the rates are going higher, and consequently gold is likely to move lower.

Let’s take a look at the charts (charts courtesy of http://stockcharts.com).

Gold moved higher yesterday and the daily candlestick was not as bearish as in late October, but we didn’t see a breakout or a major upswing either. A move $11.10 higher is visible, but nothing to call home about. Without a major breakout, it appears that the medium-term trend will resume.

Silver moved sharply higher, which seems bullish, right? Not really – that’s the same thing that happened in late October – silver moved higher and declined before the end of the session. This time silver didn’t move all the way down before the session was over, but it declined somewhat and there was no breakout above the short-term rising resistance line. Putting lines aside and focusing on moving averages, on both occasions silver ended the session close to the 20-day moving average. Moreover, please note that the volume was high both during yesterday’s session and in the case of the late-October reversal.

Will silver slide shortly? It’s likely, but as it’s the case with all markets, there are no certainties.

Gold miners moved higher on strong volume, which seems bullish until one considers that the GDX ETF didn’t even move above its most recent high. The volume was significant – that’s true – but given the uncertainty regarding the interest rates, it’s no wonder that many investors chose to take action yesterday – that’s not necessarily a bullish sign.

Miners didn’t move above their previous highs and they didn’t move above the rising resistance line. Consequently, the situation didn’t change much from the technical perspective.

Summing up, the situation didn’t deteriorate much from the technical perspective yesterday, but it did deteriorate from the fundamental point of view – the interest rates were finally increased and we heard that the plan is to increase them gradually. The situation didn’t improve either – the pre-announcement rally was something that we saw in late October as well and it didn’t result in higher prices – conversely, a major decline followed. Overall, we think that the medium-term trend will resume and that the precious metals sector will move lower, but we will wait for additional bearish confirmations before doubling the short positions.

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

To summarize:

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

• Gold: initial target price: $973; stop-loss: $1,107, initial target price for the DGLD ETN: $117.70; stop-loss for the DGLD ETN $81.84
• Silver: initial target price: $12.13; stop-loss: $14.37, initial target price for the DSLV ETN: $101.84; stop-loss for DSLV ETN $64.26
• Mining stocks (price levels for the GDX ETF): initial target price: $10.23; stop-loss: $15.47, initial target price for the DUST ETF: $31.90; stop-loss for the DUST ETF $10.61

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: $15.23; stop-loss: $21.13
• JDST ETF: initial target price: $52.99; stop-loss: $21.59

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.

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Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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