Gold & Silver Trading Alert: Small Breakdown Below $1,200

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March 6, 2015, 7:46 AM

Briefly: In our opinion speculative short positions (full) in gold, silver and mining stocks are justified from the risk/reward perspective. We are keeping the stop-loss levels at their current levels, which means that we are effectively keeping some gains locked in and at the same time we’re allowing the profits to increase.

Basically nothing happened yesterday in the precious metals market, except for some intra-day volatility (which doesn’t seem to have had any meaning), so today’s alert will be very brief. Yesterday’s breakdown (close below $1,200 in gold) was only a small bearish sign. Small, because the move itself was small and it didn’t take place on huge volume. The breakdown is unconfirmed at this time.

The only thing that we can really say without strictly repeating yesterday’s alert is that gold is once again trying to move visibly below the $1,200 level and that it could actually succeed at this attempt. If it does, and we see both a daily and weekly close below $1,200, the chance for a decline in the precious metals sector without another corrective upswing will significantly increase. In other words, the situation will become even more bearish.

Other than that, there’s not much that we can say today, but we’ll keep monitoring the markets and report to you – our subscribers – if something meaningful takes place and/or something changes.

Overall, we can summarize the situation in the precious metals market in the same way as we did previously:

Summing up, while we are already seeing some kind of corrective upswing, it doesn’t seem to be justified from the risk/reward perspective to adjust the current profitable positions. The profits may get smaller temporarily, but the odds are that they will become even greater as the medium-term trends remain down and the medium-term sell signals remain in place.

As always, we’ll keep you – our subscribers – informed.

To summarize:

Trading capital (our opinion): Short positions (full) in gold, silver and mining stocks with the following stop-loss orders and initial (!) target prices:

Gold: initial target level: $1,180; stop-loss: $1,254, initial target level for the DGLD ETN: $75.23; stop loss for the DGLD ETN $63.16
Silver: initial target level: $15.70; stop-loss: $17.63, initial target level for the DSLV ETN: $66.25; stop loss for DSLV ETN $45.40
Mining stocks (price levels for the GDX ETN): initial target level: $18.40; stop-loss: $22.17, initial target level for the DUST ETN: $18.99; stop loss for the DUST ETN $11.32

In case one wants to bet on lower junior mining stocks' prices, here are the stop-loss details and initial target prices:

GDXJ: initial target level: $23.37; stop-loss: $28.37
JDST: initial target level: $12.30; stop-loss: $7.00

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 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.

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