Gold & Silver Trading Alert: Reversals and Confirmations

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Briefly: In our opinion, full (150% of the regular full position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.

Today’s alert is going to be rather short as almost (?) everything developed as we described it yesterday and the analysis remains up-to-date. We wrote that silver’s short-term outperformance is likely a topping sign and that it just reached a resistance level (March lows) – silver declined shortly thereafter. Gold reversed as well and ended the session only $2 higher. The most interesting thing happened in mining stocks – we wrote that their rally (also relative to gold) is likely over or very close to being over and they actually moved a bit lower despite a small move higher in gold. All the bearish signals that we discussed yesterday remain up-to-date.

There is also an additional one – another day of underperformance of precious metals compared to the movement in the USD Index. Let’s take a look at the USD’s chart (charts courtesy of http://stockcharts.com).

Short-term US Dollar price chart - USD

The USD Index declined yesterday once again and the bullish (for the USD) and bearish (for precious metals) implications stem from the proximity of the rising support line and – in particular – the turning point, which is upon us (today). The recent short-term price move (including today’s pre-market downswing) was a decline, so the turning point has bullish implications for the USD.

As far as relative valuations are concerned, please note that today’s price movement so far (at the moment of writing these words, the USD is down by 0.31 and gold is up by only $4.20) is another sign of the metals’ underperformance.

Short-term Silver price chart - Silver spot price

As we discussed yesterday, silver moved to the March bottoms and then moved back down – the white metal seems to have verified the breakdown. It also verified the breakdown below the 61.8% Fibonacci retracement level based on the December 2016 – April 2017 time frame. So, nothing was invalidated technically and at the same time we saw silver’s short-term outperformance, which serves as a bearish sign. As odd as it may seem, silver’s upswing is not a bullish development, but a bearish one.

Summing up, the outlook for the precious metals market remains bearish. Based on the levels achieved by the mining stocks to gold ratio and gold stocks themselves it appears that the corrective rally in miners is over or close to being over. Silver’s short-term outperformance that we saw yesterday serves as an additional bearish confirmation. As always, we will keep you – our subscribers – informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Short positions (150% of the full position) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and initial target price levels / profit-take orders:

Gold: exit-profit-take level: $1,063; stop-loss: $1,317; initial target price for the DGLD ETN: $81.88; stop-loss for the DGLD ETN $44.57
Silver: initial target price: $13.12; stop-loss: $19.22; initial target price for the DSLV ETN: $46.18; stop-loss for the DSLV ETN $17.93
Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $26.34; initial target price for the DUST ETF: $143.56; stop-loss for the DUST ETF $21.37

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: $14.13; stop-loss: $45.31
JDST ETF: initial target price: $417.04; stop-loss: $43.12

Long-term capital (core part of the portfolio; our opinion): No positions (in other words: cash)

Insurance capital (core part of the portfolio; our opinion): Full position

Please note that the in the trading section we describe the situation for the day that the alert is posted. In other words, it we are writing about a speculative position, it means that it is up-to-date on the day it was posted. We are also featuring the initial target prices, so that you can decide whether keeping a position on a given day is something that is in tune with your approach (some moves are too small for medium-term traders and some might appear too big for day-traders).

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 signs 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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