In short: In our opinion, small (half) short positions in gold, silver, and mining stocks are still justified (no changes since yesterday).

Yesterday was another day when we didn’t see a lot of changes in the precious metals market, but there is a subtle clue coming from the USD-gold link. Let’s start with the USD Index (charts courtesy of http://stockcharts.com.)

Gold, silver and mining stocks basically stayed where they had been (miners actually declined), but based on the small move lower in the USD Index, one might have expected them to move higher. The lack of rally, therefore, can be viewed as a bearish sign.

Yesterday’s session was, to a significant extent, a repeat of Wednesday’s session. We described it in the following way:

In fact, gold formed a bearish shooting star candlestick. The signal was not that strong as the candlestick didn’t form on significant volume, but still, the situation has deteriorated.

Of course, there was no invalidation of the long-term breakdown in gold, and we didn’t see a move above similarly important line in silver either.

Both above paragraphs remain up-to-date. We saw another intra-day move higher that was followed by a decline and a closing price close to the previous one. There was no breakout and the trend remains down.

The situation in the mining stock sector (GDX ETF) has deteriorated as we saw another daily close below the rising support/resistance line. After an additional close below it, we will view the breakdown as confirmed and the chance for a downturn in the coming days will significantly increase.

All in all, there have been very few changes in the precious metals market and the changes present have confirmed the bearish outlook.

Summing up, taking all of the above into account, we arrive at the same conclusion at which we arrived previously – namely, in our opinion it’s a good idea to use a small part of the speculative capital to trade the (likely) coming decline in precious metals. If we see a meaningful confirmation of the bearish case (for instance, a decline on strong volume or a breakdown in the HUI Index), we will likely think that increasing the size of the short position might be a good idea. Naturally, in case of an invalidation of the bearish outlook, we will keep you informed as well.

To summarize:

Trading capital: In our opinion a short position (half) in gold, silver and mining stocks is justified from the risk/reward point of view. We are planning to profit on a significant downswing, so the stop-loss orders that are appropriate in our opinion are not that close (however, if something invalidates the bearish outlook, we will let you know ASAP, even if stop-loss orders are not reached).

Stop-loss orders for the short position:

• Gold: $1,307
• Silver: $21.20
• GDX ETF: $27.20

Long-term capital: No positions.

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 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