Briefly: In our opinion, a speculative short position (full) in gold, silver and mining stocks is justified from the risk/reward point of view.

The precious metals sector moved lower only slightly on Friday, but it seems to be responding to the USD’s rally that we’re seeing today. The precious metals sector seems to be moving in the direction suggested by the confirmation of the miners’ short-term breakdown. What’s next?

Quite likely, a continuation of the decline. There’s not much that changed on the gold chart on Friday (and we don’t know today’s closing price yet), so we will focus on charts that seem to provide more visible clues as to the next move in the sector: silver and mining stocks (charts courtesy of http://stockcharts.com).

Silver doesn’t feature any changes on the above chart, but at the moment of writing these words, the white metal is already trading at $16.79, which means that silver has already broken below the declining support line. This opens the way to a major plunge in the coming days / weeks. However, let’s keep in mind that silver moved below this important line just today and hasn’t closed there yet. Consequently, this breakdown is not that meaningful just yet.

The HUI Index is moving lower in tune with our expectations. Gold stocks moved lower after the point marked with the vertical green dashed line. If we now see a sell signal from the Stochastic indicator (and it seems very likely that we will), it will serve as a confirmation that much lower values are to be expected relatively soon.

We are very likely to see such a sell signal because of the short-term breakdown that we can see in the GDX ETF.

The decline that we saw on Friday took place on volume that was not very huge, but was not extremely low either, so there are no bullish implications here. Miners didn’t manage to move back above the rising support / resistance line after last week’s breakdown. This suggests that the rally in mining stocks is already over and lower values are to be expected. Since the entire precious metals sector usually moves in the same direction in the case of major moves, the implications are bearish for gold and silver as well.

Summing up, the situation in the precious metals market deteriorated on Friday, but not very significantly. We still have to see the invalidation of the silver’s breakout before we can say that the corrective upswing is (very likely) over. Silver moved back below right to the declining resistance/support line today, but we’ll have to see it close below it to say that the situation has become much more bearish. It seems likely that we will see this confirmation relatively soon. Mining stocks have confirmed the move below their rising support line, which does not bode well for the short term. The overall outlook for the precious metals sector remains bearish – it seems that the final bottom is still ahead of us.

On a side note, we have added a new element to the Research menu on the website entitled Gold Trading Tips – that’s the list of most important things that we think one should keep in mind when engaging in gold trading (most points apply to other markets as well) and that we utilize in our alerts.

We will keep you – our subscribers – updated.

To summarize:

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

• Gold: initial target price: $1,115; stop-loss: $1,253, initial target price for the DGLD ETN: $87.00; stop loss for the DGLD ETN $63.78
• Silver: initial target price: $15.10; stop-loss: $18.13, initial target price for the DSLV ETN: $67.81; stop loss for DSLV ETN $38.44
• Mining stocks (price levels for the GDX ETN): initial target price: $16.63; stop-loss: $21.83, initial target price for the DUST ETN: $23.59; stop loss for the DUST ETN $10.37

In case one wants to bet on lower junior mining stocks' prices, here are the stop-loss details and initial target prices:

• GDXJ: initial target price: $21.17; stop-loss: $28.68
• JDST: initial target price: $14.35; stop-loss: $5.65

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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Latest Free Trading Alerts:

The Stochastic indicator is quite a popular tool for commodity traders (including those interested in trading crude oil and precious metals) and it is not without a reason. This indicator has proven itself many times as something that can really indicate the next move in the market – however, it has to be applied carefully, as not all ways in which it works are really profitable. We have just seen 2 signals from this important indicator – one bullish (based on daily closing prices) and one bearish (based on weekly closing prices). Which should one focus on?

Oil Trading Alert: Stochastic Signals

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Hand-picked precious-metals-related links:

China Sets Up Gold Bullion Fund For Central Banks

Bitgold buys GoldMoney: Is this the start of a new rush into gold investment vehicles?

Chinese do export gold – to Hong Kong: Klapwijk

Barrick sells Cowal mine to Evolution Mining for $550 million

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In other news:

The Fed is not 'walking the talk'

Yellen: Fed can't risk 'overheating the economy'

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Thank you.

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

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