Briefly: In our opinion no speculative positions in gold, silver and mining stocks are now justified from the risk/reward perspective. However, day-traders might consider a small speculative long position in silver.

We begin today’s alert with the analysis of the USD Index chart (charts courtesy of http://stockcharts.com).

Not much happened with the USD Index yesterday so our yesterday’s comments remain up to date:

(…) The decline was visible, but not really significant. It didn't change anything as far as the outlook is concerned, because the move lower was too small to correct the previous upswing. We expect that more visible declines will continue.

Please note that the USD Index is moving close to its next cyclical turning point, which means that we are likely to either see a move lower right before it and a move higher (continuation of the rally) or no big moves before it and then a decline when the turning point is reached. Either way, we're likely to see a move lower in the USD Index in the coming days. If it declines shortly, then we can expect the rally to re-start at or very close to the turning point.

What about the reaction of the precious metals market? It was not absent, but delayed. Gold and silver are moving higher in pre-market trading today, and if you had opened a small speculative long position in silver, it's already profitable.

What can we see on the medium-term chart?

We see that the decline has been too shallow to make the index leave overbought territory. We still might witness a corrective downswing since what we’ve seen so far is not significant enough for the rally to continue.

Let’s take a look at the gold chart to see if the hints coming from the U.S. dollar market are reinforced or invalidated.

The GLD ETF moved up on low volume which is characteristic of a corrective upswing rather than a beginning of a new rally. This is very much in line with what we wrote the day before yesterday and, consequently, these previous remarks are still valid:

Gold, or more precisely the GLD ETF moved higher yesterday, but the move materialized on low volume. This tells us 2 things. Firstly, gold is likely correcting the downswing – not starting a new rally (low volume). Secondly, gold is very eager to move higher in the short term – it has done so even without the dollar’s help.

How high can gold go during this upswing? It seems likely that gold will correct to one of the classic Fibonacci retracement levels. The lower one is at the same price level as the 300-day moving average, and the upper one is very close to this month’s high. We’ll be watching the markets for bearish confirmations once we see gold close to these levels.

What can we infer from the mining stocks chart?

First of all, we just saw a buy signal from the Stochastic Indicator which suggests that we might see some strength in mining stocks. This was the case in late March, late May and early August. However, there have also been a couple of smaller rallies and fake signals so a big rally is far from being a sure bet.

We could see some sideways movement because mining stocks have reached their 50-day moving average but, ultimately, if gold moves higher and the dollar moves lower, then miners are still likely to move a bit higher before correcting.

Overall our yesterday’s closing sentence feels appropriate also today:

Summing up, it seems that the USD Index is not done declining and that precious metals are not done rallying, but the next big moves are still likely to be to the upside in case of the USD and down in case of PMs.

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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