Briefly: In our opinion no speculative positions are justified from the risk/reward perspective.

Gold and silver have recently moved below their June / May lows and the mining stocks moved below their 61.8% Fibonacci retracement level. These moves had not been that significant, as they had not been confirmed. It changed yesterday as they have all closed below the above-mentioned levels for the third consecutive trading day and confirmed the breakdown. Will we see another violent downswing?

This actually could (!) be the case because a confirmation of the breakdown is an important event – some might argue that it’s more important than the breakdown itself. Let’s take a look at the charts and discuss what has changed and what has not (charts courtesy of http://stockcharts.com.)

Starting with the latter, we don’t see any changes in the USD Index. The index simply remains at the long-term resistance line, which makes a corrective downswing probable. Our previous comments remain up-to-date:

There was nothing that changed in the USD Index in the last several days. The point here is that the USD Index is still likely to correct based on the resistance line that was just reached. The decline in the USD Index is still likely to cause gold, silver, and mining stocks to move temporarily higher.

While the above remains up-to-date and the impact on the precious metals market is likely to be positive, the situation on the gold market has deteriorated. As we have mentioned above – the breakdown was confirmed, which is a bearish sign. It’s true that the RSI indicator is still oversold, but with the breakdown being confirmed, we have a much less bullish outlook than we had yesterday.

The silver market moved and closed higher yesterday, but it has still closed below the May’s lowest close. In other words, breakdown was still confirmed.

The same goes for the mining stocks. The GDX ETF moved higher yesterday and closed higher as well, but it has still closed below the 61.8% Fibonacci retracement. The breakdown below this level, therefore, was confirmed.

Summing up, while the precious metals market is still in a medium-term downtrend and is still more likely to correct in the short term than not, it’s no longer likely enough for us to keep saying that holding long positions is justified from the risk/reward perspective. Gold is now more or less when the position was opened, silver and mining stocks are a little higher, and junior mining stocks (GDXJ or JNUG) are more visibly higher, so overall this small trade was a profitable one. We’ll keep you informed and will let you know when it’s once again safe enough (in our opinion) to enter a short or long speculative position (of course not every move is worth trading as it could be way too risky – such as the situation is right now, and such as it was before and during the recent decline – based on USD Index’s overbought status). It could be just days away, so stay tuned!

To summarize:

Trading capital (our opinion): No positions

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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