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

While very little happened in the precious metals market Monday-Thursday last week, we saw a relatively big intra-day move on Friday. Gold declined about $20 initially, but erased most of the move before the end of the session. How much can this move and the reversal tell us about the future for gold, silver and mining stocks? Let’s check (charts courtesy of http://stockcharts.com.)

The daily reversal is a bullish factor at the first sight, especially that it formed on huge volume. However, the important thing that needs to be considered here is what happened at the same time in the currency sector. The USD Index actually declined, instead of rallying, and this means that the gold market is weak. True, it reversed after declining, but given the dollar’s decline, it was supposed to rally. It didn’t and the final implications are bearish.

The silver market declined on significant volume as well and this has accompanied local bottoms many times in the past. Consequently, we have indications that we are close to a local bottom. We have previously mentioned that we could be seeing a repeat of the previous February-March pattern and it could still be the case now.

Let’s keep in mind that it has also often been the case that big declines in the entire precious metals market were preceded by silver’s short-term outperformance. We have definitely not seen outperformance in the case of the white metal in the past several weeks. Perhaps this is what we will see in the coming days.

Mining stocks declined on average volume and there was no breakdown below the declining resistance line. The outlook remains unchanged – we think the medium-term trend remains down, but we could still see a move higher in the short term – perhaps it will be similar to the mid-March spike right before the decline.

Why is the medium-term trend down despite a move above the declining resistance line? For instance, because of the declining resistance line for the HUI to gold ratio.

We covered this ratio in detail in Friday's alert and our comments remain up-to-date. In short, it seems that if we see some more strength, we’ll likely see a reversal shortly.

As we mentioned earlier today, the move lower in gold, silver, and mining stocks took place along with a short-term decline in the USD Index. However, that’s just a daily reaction – we can’t imply that if the USD declines some more, metals and miners will decline as well. The opposite still seems more likely. At this time we wouldn’t be surprised to see a corrective downswing in the USD Index to 81 (the previous local high) or even lower, before the rally resumes.

This kind of action could easily cause the precious metals market to move higher once again. If silver outperforms temporarily, then we will have a bearish confirmation and a signal to consider opening short positions.

For now, the situation in the precious metals market remains too unclear to open any positions in our view. We saw a bearish sign as the PM sector declined along with the USD Index, but that was just the case for one day and we also saw a reversal in gold that materialized on huge volume, which is a bullish sign.

Summing up, in our opinion, sticking to "when in doubt, stay out" is a good idea right now.

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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