Gold & Silver Trading Alert: USD Above 100 and Implications for PMs

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

Today’s alert is going to be rather short as not much new happened in the market yesterday. The USD Index moved higher (visibly above 100) and precious metals declined a bit. However, despite the USD’s rally, it didn’t break above the 2015 highs and without a breakout, not much changed from the technical point of view - what we wrote previously remains up-to-date (it’s likely that we will see a breakout, but unless we actually see it, caution is advised).

The precious metals’ reaction was bullish (there was no big slide and the miners declined on low volume), but not very bullish (metals and miners didn’t rally). Overall, we can summarize the situation, just like we summarized it yesterday:

Summing up, it seems that the outlook for the precious metals market remains bearish for the following weeks, but it’s no longer bearish for the following days. The relative strength of gold, silver and mining stocks compared to the rally in the USD Index has bullish implications and so does the mining stocks’ strength (as seen on Tuesday) relative to gold. Consequently, it seems that this week’s decision to take profits off the table and wait for additional bearish signs before re-opening a short position (or for multiple bullish signs before opening a long position) was correct. The analogy to 2013 continues to suggest that the next big move will be to downside and the charts confirm this outlook, but caution is advised in the very short term.

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

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): No positions (in other words: cash and/or positions from our other alerts)

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

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.

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