Briefly: In our opinion (half of the regular size) speculative long positions in gold, silver and mining stocks are now justified from the risk/reward perspective.
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 visibly below the important $19 level for the first time in 3 months. What’s next?
The situation in gold, silver and mining stocks hasn’t changed much since we wrote about it yesterday, as the most important part of the move happened before markets opened in the US and we covered these moves in yesterday’s alert. The situation in the mining stocks, however, seems to confirm our yesterday’s analysis. Before we move to this chart, let’s take a look at the other ones (charts courtesy of http://stockcharts.com.)
Starting off with the USD Index, we see that there was a small move higher in terms of the daily closing prices, but not in terms of the intra-day highs. It still seems to us that a correction is just around the corner. Let’s keep in mind that we have seen 2 daily reversals on Wednesday and Thursday. 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.
Yesterday we wrote that gold declined once again and reached the $1,240 level – the May 2014 bottom and we referred to this level as a clearly visible support. Today we also think that it’s 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).
Please note that yesterday’s session materialized on significant volume and we saw a small reversal before the end of the session, and the combination of the above is a weak (but still) confirmation of the bullish case for the short term.
Moreover, please note that the RSI indicator has just flashed a buy signal after moving below the 30 level.
The situation on the silver market is still the most important thing that precious metals investors and traders need to look at.
The white metal has just broken into new 2014 lows. Silver moved below the May low of $18.61 but ended the session above it, which means that we could see further strength and invalidation of the breakdown below the all-important $19 level.
Our yesterday’s comments remain up-to-date:
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.
The SLV ETF chart provides one additional interesting clue. The volume on which the ETF declined was huge. The last 2 times when we saw a similar event, we also saw a sharp rally in the following days. The RSI indicator is oversold, supporting the bullish outlook for in the short term.
The most bullish action that we saw yesterday, took place in the mining stocks sector. The GDX ETF declined in the first part of the session (allowing to enter long positions at most favorable prices) but then reversed and ended the session above the previous close. More importantly, the miners closed the session above the previously broken 61.8% Fibonacci retracement of the previous rally, which invalidated the breakdown. Both: the invalidation and the daily reversal are bullish signs, especially that they happened while gold declined.
On a side note, we were asked for our short-term target prices for GDXJ and JNUG ETFs and they are: $39.30 and $19.30, respectively.
Overall, in our opinion summarizing the situation in a similar way as we have done yesterday is appropriate and so is keeping the small speculative long positions.
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: 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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