Gold & Silver Trading Alert: Preparing BEFORE the Move #2

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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.

The precious metals sector didn’t do much once again yesterday – gold declined a few dollars and so did silver and mining stocks, but the size of the move was not huge. The small decline, or as we can also call it, the pause, is not something that should make one think that the same kind of performance will be seen for much longer. In fact, it is the time before the move that one should be most focused – not after it.

Yesterday’s alert was very short because nothing had really changed on Wednesday, and the same is the case today as even less changed yesterday. Gold, silver and mining stocks moved a little lower, making our short positions a little profitable. Naturally, that’s not the size of the move that we have been expecting to see before the decline is over (it has much further to go), but still, it’s better to see the market move in tune with our expectations than not.

The real move lower is likely not far away, but for now it seems that a little more patience is required. As far as chart analysis is concerned, everything that we wrote on Wednesday remains up-to-date, so if you haven’t had the chance to read Wednesday’s alert, we suggest that you do so today.

Other than the above, there’s not much more that we can say today. Once we see some kind of new important developments, we’ll let you know.

Since nothing changed, we will summarize today’s alert just like we summarized the yesterday’s one.

Summing up, the situation in the precious metals market deteriorated once again and the outlook is now significantly more bearish than it was just a few days ago. The miners’ reluctance to move lower is not something that’s really bullish at this time – it’s a normal reaction given the move to (almost) the 2008 low. Consequently, we think that the situation is bearish enough to justify opening small (half of the regular position) short positions from the risk/reward point of view. We will likely double the position once we see an additional bearish confirmation or a number of them.

We will keep you – our subscribers – updated.

To summarize:

Trading capital (our opinion): Short position (half) 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: $17.33, initial target price for the DSLV ETN: $67.81; stop loss for DSLV ETN $41.17
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 (we do not suggest doing so – we think senior mining stocks are more predictable in 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: $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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