Briefly: In our opinion, short (full) speculative positions in gold, silver and mining stocks are justified from the risk/reward point of view.
Just when we had multiple bearish signs in place and silver closed below its lowest close of 2014 for 2 consecutive trading days (almost confirming the breakdown), the latter seems to have been invalidated. Silver just closed above its 2014 low once again. What are the implications?
This might seem odd for those who haven’t been following our analysis for a long time, but there are little to no implications, as silver often provides fake technical signals – especially breakouts and especially when other parts of the precious metals market are not confirming silver’s signs.
Before we move to the charts, please note that we are focusing only on yesterday’s changes in today’s alert, because multiple other factors that are currently in place were covered in detail in Wednesday’s alert – they remain up-to-date, so if you haven’t had the chance to read Wednesday’s alert, we encourage you to do so today.
Having said that, let’s take a look at the charts (charts courtesy of http://stockcharts.com).
Gold moved only a bit higher yesterday (it canceled most gains before the end of the session) and the move took place on relatively low volume. Gold had declined on huge volume and it now moved higher on low and declining volume – that’s normal during counter-trend corrections, so the implications are bearish.
Silver’s lowest daily close of 2014 was $15.29 and now silver closed at $15.36 – only 7 cents higher. The breakdown was invalidated but in a very unclear way. Consequently, we put little value to this move. In fact, even if silver moved to $16 or so, it would not invalidate the bearish outlook, if it wasn’t confirmed by other, reliable signals. It’s simply very often the case that silver acts strongly very temporarily just before another major slide in the entire sector (note silver’s performance in mid-Feb and late Feb this year).
The short-term trend and the medium-term one remain down and the outlook remains bearish.
What about mining stocks?
One might have expected miners to finally rally at least a bit given a move higher in gold and silver. Both key indices: the XAU and HUI actually declined once again. GDX moved 7 cents higher on tiny volume (which has bearish implications on its own) and silver stocks (the SIL ETF) closed without a change, which is particularly bearish given silver’s move higher yesterday.
No matter how one looks at it, miners are suggesting much lower prices for the precious metals sector.
The above regards senior mining stocks, but what about juniors?
Juniors are sliding as well and are also well below their 2008 low. In fact, they broke below their 2008 low more than 6 months ago. They spent the last several months trading sideways and it seems that they are now ready to resume their downtrend. Moreover, it seems that the decline is already underway.
Consequently, not only big, senior precious metals producers are pointing to lower precious metals prices, but that’s also the case with junior mining stocks.
Summing up, the situation in the precious metals market remains very bearish. Silver’s small ($0.07) move above the 2014 low is not significant while the miners’ continuous weakness is. Overall, little changed yesterday and our previous expectations remain up-to-date: we think that the precious metals market will move lower in the coming weeks.
We will keep you – our subscribers – updated.
To summarize:
Trading capital (our opinion): Short position (full) 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: $1,062; stop-loss: $1,208, initial target price for the DGLD ETN: $95.88; stop loss for the DGLD ETN $66.49
- Silver: initial target price: $12.72; stop-loss: $17.11, initial target price for the DSLV ETN: $102.21; stop loss for DSLV ETN $38.32
- Mining stocks (price levels for the GDX ETN): initial target price: $14.12; stop-loss: $18.73, initial target price for the DUST ETN: $30.68; stop loss for the DUST ETN $14.08
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 – we 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: $18.12; stop-loss: $25.78
- JDST: initial target price: $16.26; stop-loss: $5.79
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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Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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