Briefly: In our opinion no speculative positions in gold, silver and mining stocks are justified from the risk/reward perspective.

Overall the precious metals market ended the week where it had ended the previous one, so at the first sight not much changed. However, taking a closer look reveals that we have seen a clue that helps us form more precise expectations for gold, silver and mining stocks. Let’s take a closer look (charts courtesy of http://stockcharts.com.)

To be honest, the thing that changed was nothing on the gold market and what we wrote previously remains up-to-date:

Gold’s indecisive trading is not rally visible from the long-term perspective. What we see here is a move to the rising resistance line and approximately to the 60-week moving average (gold is only slightly above it). (…) The gold to bonds ratio moved only slightly higher and the overall trend is definitely down. The same goes for gold’s price compared with the prices of other commodities. What we saw was not a real rally, but a correction within a downtrend.

The thing that is so interesting is that the above – the lack of changes – was (un)seen along with a move lower in the USD Index.

A decline in the Dollar Index is something bullish for the precious metals sector – under normal conditions when USD Index declines we can expect the PMs to rally. In the previous alert we wrote the following:

The analysis of the USD Index, and in particular its cyclical turning points suggests that we may not need to wait for long before the most recent trends reverse. In this case, we are likely to see a move higher in the USD Index and a move lower in the Euro Index and in the precious metals sector. If the USD Index rallies and precious metals don’t decline, then we will have a bullish confirmation; we don’t see such action now.

Actually, the opposite happened – the USD Index declined and precious metals haven’t rallied, which is a bearish sign. The question is if the USD Index has already bottomed. It could be the case, but our best guess here is that we will see a turnaround closer to the turning point (in a few days) and perhaps at slightly lower price levels. We would not be surprised to see the USD Index move to the 79.80 level or so – to the declining support line – before the bottom is formed. This could push gold, silver and mining stocks higher once again, but if this move is really small then we will have a bearish confirmation and might decide to open short positions.

We continue to expect more volatility to follow. We will be actively monitoring the markets and report to you accordingly.

Summing up, even though the precious metals sector moved much higher in the previous weeks, it seems that we are at or quite close to a local top in the precious metals sector. While the medium-term trend in the precious metals market is down, we were likely to see a corrective upswing – and we have. While in the past days it seemed that the corrective upswing was not over yet, we have some signs that it is over now. The most recent one is the lack of PMs reaction to dollar’s decline. If this signal is confirmed or we see more bearish signs, we might open short positions, but we are not at this point just yet.

To summarize:

Trading capital (our opinion): No positions

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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