Gold & Silver Trading Alert: Pre-Fed Announcement Outlook

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

Despite numerous bullish signals seen in the previous days, metals and miners declined on Monday and they didn’t rally much higher yesterday. Is the rally already over and the market is ready to plunge after the Fed raises the interest rates, or will metals and miners rally on the hike, or will there be no rate hike?

The outlook for the precious metals market changed substantially after Monday’s session, but yesterday’s session didn’t change anything, so today’s alert will be very short. If you haven’t had the chance to read yesterday’s issue, we suggest that you do so today.

Gold moved a bit higher yesterday in the first part of the session, but ended only $2 higher, silver moved 15 cents higher and the GDX ETF was up 7 cents. All in all, nothing changed. The only thing that indeed changed was the value of the USD Index, which moved higher, visibly back above the 38.2% Fibonacci retracement based on the Oct. – Dec. rally. This has bullish implications for the USD Index and bearish ones for the precious metals market.

Overall, nothing changed and our yesterday’s comments remain up-to-date. Consequently, we will summarize today’s alert just as we summarized yesterday’s issue:

Summing up, the situation in the precious metals market and the outlook deteriorated substantially based on yesterday’s session. Whenever something is likely to happen in a given market but exactly the opposite happens, we have a strong signal that the market will move in this opposite direction (one of the examples of this rule is an invalidation of a breakout or a breakdown). Based on what happened yesterday and how the market is performing today, we think that we could still see a move higher when the USD Index declines (if it declines), but that this move higher in PMs would be small and would not be the move that we would like to focus on. Instead, based on new short-term bearish signals and due to the looming announcement from the Fed (we expect the Fed to increase rates on Wednesday) we think that small short positions in gold, silver and mining stocks are now justified from the risk to reward perspective. We will most likely adjust this position in the following hours or days (likely doubling it when we see additional bearish confirmations, but it’s too early to do so now).

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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