Gold & Silver Trading Alert: Upcoming Weekly Reversal in Gold

tools spotlight

Briefly: In our opinion, full (150% of the regular full position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective. In other words, this is an increased short position. This position was originally featured on Jan. 12, 2016 at 3:49PM.

Today’s alert is going to be short as not much changed yesterday – metals and miners declined and the USD Index moved higher, but the sizes of the moves were not huge and thus basically everything that we wrote previously remains up-to-date.

One thing that we would like to discuss though, is the likelihood that we will see a major (weekly) reversal in gold. We already see it as gold reversed most of this week’s rally, but so far the week is not over, so the question is what happens to the price of the yellow metal today. Based on silver’s short-term outperformance (which has strong bearish implications for the short term) it seems that the price of gold could slide further, but the key thing is that even if it doesn’t slide significantly, we are still likely to see a weekly candlestick that would imply a big decline in the following weeks.

Short-term Gold price chart - Gold spot price

Gold ended the previous week at $1,196.20 and it ended yesterday’s session at $1,201.50 – only about $5 higher. It’s not that bearish at the first sight, but let’s keep in mind that gold rallied to $1,218.90 on an intra-day basis. In other words, gold erased $17.40 of the $22.70 rally – about 77%.

Weekly reversals are much more important than daily ones as they herald weeks of declines, not only days. Since the week is not over yet, the bearish implications are not yet in place, but it is likely that we will see this very important bearish confirmation in just several hours.

Before summarizing, we would like to reply to a question that we received from several subscribers: Given that Trump is taking the office what’s likely to happen? Our reply is “pretty much the same thing that happened after the Y2K scare – nothing or next to nothing”. There’s a lot of uncertainty, news that exaggerate the implications of the ceremony and advertising based on it. However, nothing is likely to change materially, perhaps with the exception of the uncertainty itself, which is likely to decrease. The latter would be a bearish factor for gold.

Summing up, the bearish medium-term outlook remains in place and based on silver’s short-term outperformance, reversals in it and in the USD Index along with other factors, it appears that the short-term outlook is very bearish. We are likely to see a weekly reversal in gold, which would further confirm the bearish outlook for the following weeks.

As always, we will keep you – our subscribers – informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Short positions (150% of the full position) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and initial target price levels / profit-take orders:

Gold: exit-profit-take level: $1,063; stop-loss: $1,243; initial target price for the DGLD ETN: $81.88; stop-loss for the DGLD ETN $48.78
Silver: initial target price: $13.12; stop-loss: $17.53; initial target price for the DSLV ETN: $46.18; stop-loss for the DSLV ETN $24.86
Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $24.63; initial target price for the DUST ETF: $143.56; stop-loss for the DUST ETF $27.97

In case one wants to bet on junior mining stocks' prices (we do not suggest doing so – we think senior mining stocks are more predictable in the case of short-term trades – if one wants to do it anyway, we provide the details), here are the stop-loss details and initial target prices:

GDXJ ETF: initial target price: $14.13; stop-loss: $40.12
JDST ETF: initial target price: $104.26; stop-loss: $17.28

Long-term capital (core part of the portfolio; our opinion): No positions (in other words: cash)

Insurance capital (core part of the portfolio; our opinion): Full position

Please note that the in the trading section we describe the situation for the day that the alert is posted. In other words, it we are writing about a speculative position, it means that it is up-to-date on the day it was posted. We are also featuring the initial target prices, so that you can decide whether keeping a position on a given day is something that is in tune with your approach (some moves are too small for medium-term traders and some might appear too big for day-traders).

Plus, you might want to read why our stop-loss orders are usually relatively far from the current price.

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 signs 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 Tools and Indicators.

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.

=====

Latest Free Trading Alerts:

The so-called “Trump rally” appears to have run its course. What does it imply for the gold market?

Will End of Trump Rally Support Gold?

Some analysts believe that Trump’s economic agenda implies the paradigm shift from sluggish growth and low inflation to reflation and the ‘great rotation’ out of bonds and into stocks. Are they right? It is a very important question, as the performance of gold in 2017 will depend largely on whether the new presidency will lead to lasting shift in the markets. We invite you to read our today’s article about Trump’s economic policy and find out how it will affect the gold market.

Great Rotation and Gold

=====

Hand-picked precious-metals-related links:

ETF Investors Skeptical Of Gold Despite Rally

Bullion Bulls Have History on Their Side as Trump Takes Helm

=====

In other news:

Euro zone underlying inflation remains anemic: ECB survey

Soros Says Markets to Slump With Trump, EU Faces Disintegration

Charting Stock Performance Under Trump, Don't Look to Prior Transitions

Dissecting The Economy Trump Is Inheriting

Oil price rises for second day ahead of producers' compliance meeting