Briefly: In our opinion, long (full) speculative positions in gold, silver and mining stocks are justified from the risk/reward point of view.

Gold and mining stocks didn’t do much yesterday, but silver performed quite differently. The white metal declined in a quite sharp way. Some time ago it was the case that the white metal was leading the yellow one, both up and down. Is the relationship back?

Not likely. Signals from silver are usually not meaningful if they are not confirmed by other parts of the precious metals sector and… actually, not that much happened in the white metal.

Let’s take a closer look (charts courtesy of http://stockcharts.com).

Yesterday, we commented on the above chart in the following way:

Gold moved a bit higher and the volume was not strong on a relative basis – it was a bit lower than what we saw on Friday, when gold declined. The implications thereof are bearish, but mildly so.

Today we see that the implications of the price-volume action improved as we saw a move lower and a reversal on relatively big volume. Reversals are – just as their name suggests – quite straightforward in interpretation and the size of the volume emphasizes them. Gold moved lower initially (which was probably triggered by the rising USD), but managed to move back up before the end of the session. It touched the previously broken declining support line without breaking below it, so the move above this line is now more than verified.

Overall, the outlook improved yesterday.

Our yesterday’s comments on the Stochastic indicator remain up-to-date:

The sell signal from the Stochastic indicator is only somewhat bearish, as these types of signals were quite often seen before tops and not at or after them. Plus, the more reliable version of this indicator (based on weekly closing prices) provides us with bullish implications as we recently saw a buy signal.

Silver moved lower and this might have made one concerned, but putting the move into perspective and comparing its size to the nearby support and resistance lines shows that silver more or less moved back to the previous resistance levels and verified them as support. OK, silver closed a few cents below the 20-day moving average (too close to it to say that it was really broken in our view), but it closed visibly above the declining support line.

As you’ve already seen, the above decline is not confirmed by gold at all and as you’ll see in a few seconds, it’s not confirmed by mining stocks either.

Consequently, although it seems that a lot happened yesterday, actually little changed.

Miners moved a bit lower and the decline took place on relatively low volume. It also didn’t take miners below the previous low and the 38.2% Fibonacci retracement level. This tells us that nothing really changed and that the daily price-volume combinations are actually bullish.

On top of the above, it’s important to note that since the USD moved higher yesterday, the entire precious metals sector had a good reason to decline and it held up relatively well, especially gold. The decline in miners was very small and the more visible decline in silver didn’t take it (visibly) below the important support levels. Consequently, the outlook remains bullish.

Summing up, while it doesn’t seem that the medium-term decline is over yet, it also doesn’t seem likely that the counter-trend short-term rally is over. It seems likely to us that we will see additional short-term strength before metals and miners turn south once again. Consequently, it seems likely that the profits on our long positions will become even bigger before this trade is over. We will keep you – our subscribers – updated.

We will keep you – our subscribers – updated.

To summarize:

Trading capital (our opinion): Long position (full) position in gold, silver and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and initial (! – this means that reaching them doesn’t automatically close the position) target prices:

• Gold: initial target price: $1,135; stop-loss: $1,063, initial target price for the UGLD ETN: $9.44; stop loss for the UGLD ETN $7.69
• Silver: initial target price: $15.90; stop-loss: $14.12, initial target price for the USLV ETN: $16.54; stop loss for USLV ETN $11.51
• Mining stocks (price levels for the GDX ETN): initial target price: $15.87; stop-loss: $12.37, initial target price for the NUGT ETN: $5.17; stop loss for the NUGT ETN $2.46

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: initial target price: $21.78; stop-loss: $17.67
• JNUG: initial target price: $12.01; stop-loss: $6.39

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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