Briefly: In our opinion opening small (half of the regular position) long positions in gold, silver and mining stocks with the following stop-loss orders is a good idea.

There were unsuccessful attempts to move below $19 in silver on Dec 3, 2013, Dec 4, 2013, Dec 31, 2013, Jan 30, 2014, Apr 24, 2013, May 1, 2014, May 2, 2014, May 29, 2014 and the only time that we silver closing below $19 was from May 30 2014 to Jun 4, 2014 – after that a sharp rally started.

Silver has just closed below the important $19 level for the first time in 3 months. What’s next?

In today’s alert we will cover the 3 most important changes that were seen on the precious metals market and the related markets – and these are the breakdown in silver (including today’s pre-market move), decline in gold and another daily reversal in the USD Index. Let’s take a closer look (charts courtesy of http://stockcharts.com.)

Tuesday’s reversal in the USD Index was the most profound one that we’ve seen in several weeks and we saw this bearish intra-day sign once yesterday. The odds for a decline in the following weeks and days have increased once again. Our previous comments remain up-to-date:

The USD Index is still likely to turn south based on the resistance line that was reached, the turning point that is still very close and the extremely overbought situation in the short term.

What we see on the above gold chart is less significant than what we are not seeing there yet – today’s pre market action. Gold declined once again and reached the $1,240 level – the May 2014 bottom. This is a clearly visible support. Something that could definitely generate a corrective upswing given that there is some king of trigger (and it still seems very likely that the USD Index will provide this kind of trigger).

The situation on the silver market, however, is the most important thing that precious metals investors and traders need to look at. It is the white metal that is about to (or almost about to) break into new lows. There were many cheers when silver rallied in May, but we have been consequently emphasizing the corrective nature of that upswing. It turned out that silver formed another lower top in July and started to decline.

Today, silver reached its May low of $18.61 (even moved slightly below this level). Does this change the medium-term trend? No. Are we likely to see a corrective upswing based on this level being reached? Quite likely. Another option for silver would be to break lower and stop at $18.17 – at its 2013 low. We expect this to happen this year and we continue to think that silver will plunge once this level is taken out (thus creating an exceptional buying opportunity), but that doesn’t have to happen immediately. From the speculative and short-term point of view, a corrective upswing here seems to be in the cards.

Summing up, the odds for the corrective upswing in the precious metals sector have increased once again and so has the size of the potential rally. While we have been suggesting staying out of the precious metals market with the long-term investment capital (long-term investments are usually the biggest part of one’s portfolio), it seems that the bounce in the market has become probable enough to push the risk/reward ratio in favor of opening small speculative long positions (at the same time we don’t change our attitude toward long-term investments, as the medium-term trend is still down).

To summarize:

Trading capital (our opinion): Small (half of the regular position) long positions in gold, silver and mining stocks with the following stop-loss orders and (initial) target prices:

• Gold: Stop-loss: $1,224; Target price: $1,276
• Silver: Stop-loss: $18.38; Target price: $19.50
• GDX ETF (it might be a good idea to buy at least 10 minutes after the markets open so that miners decline initially because of today’s decline in the metals): Stop-loss: $22.78; Target price: $25.30

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.

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 automated tools (SP Indicators and the upcoming self-similarity-based tool).

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.

Thank you.

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

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