Briefly: In our opinion (full) speculative short positions in gold, silver and mining stocks are now justified from the risk/reward perspective.
Not much happened yesterday in terms of the daily closing prices, but the price/volume action and relative valuations give us subtle clues as far as the next move is concerned. Let’s see what happened (charts courtesy of http://stockcharts.com.)
The key thing that we see on the long-term chart is that gold hasn’t moved above the declining resistance line. Consequently, the medium-term trend remains down and the outlook remains bearish.
Gold moved a bit higher on Monday, but the volume in the GLD ETF was so low that it actually seems to be a bearish sign. This type of action is also what we saw right before the big daily drop in the price of gold. Consequently, even though gold moved higher yesterday, it has bearish implications.
When we compare gold’s price with the prices of bonds we get another bearish picture. Gold simply hasn’t moved much higher from this perspective. Whatever safety-run we have seen in the past weeks, it was not impressive – gold outperformed bonds only slightly.
As we wrote in the opening paragraph of today’s alert, mining stocks provide us with subtle indications regarding gold’s next move. The first clue comes from the price-volume analysis. The second clue is the fact that miners refused to move higher even though gold did and you can see it clearly on the above chart.
Summing up, the outlook for gold remains bearish. Gold’s move higher that we saw yesterday was actually a bearish sign because it materialized on low volume and we can say the same about the lack of rally in mining stocks.
To summarize:
Trading capital (our opinion): Short (full) position in gold, silver and mining stocks with the following stop-loss levels:
- Gold: $1,353
- Silver: $21.73
- GDX ETF: $28.30
Long-term capital: No positions
Insurance capital: 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 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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