Gold & Silver Trading Alert: USD’s Comeback

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Briefly: In our opinion no speculative positions in gold, silver and mining stocks are currently justified from the risk/reward point of view.

Today’s alert is going to be rather short as almost nothing happened yesterday and our yesterday’s alert remains up-to-date.

In particular: mining stocks didn’t break below the rising support line and gold and silver moved down just a little. The moves were not big enough to change anything.

One interesting development was the reversal in the USD Index that ultimately closed above the upper border of the triangle patter. Please take a look below (charts courtesy of http://stockcharts.com).

Short-term US Dollar price chart - USD

In yesterday’s alert we wrote the following:

Finally, today, we saw an important invalidation in the USD Index. At the moment of writing these words, the USD Index is trading at about 96.40, which is visibly below the upper border of the triangle and even a bit below the lower border. With the breakout above the triangle being invalidated, we can no longer describe the short-term outlook for the USD Index as bullish (the medium-term outlook remains clearly bullish, though). The implication is that we could see an upswing in the precious metals market in the short term, but that the medium-term is likely to remain to the downside.

The short-term outlook for the USD Index improved as the breakout above the triangle pattern wasn’t ultimately invalidated (closing prices being more important for breakouts / breakdowns than intra-day extremes). So, the outlook for the USD Index remains bullish and it could be the case that the precious metals will resume their declines just as USD Index is likely to resume its rally. Still, what we see on gold, silver and mining stocks charts doesn’t confirm the near-term decline just yet. Besides, the USD is declining today (being at 96.21 at the moment of writing these words) as well, so the breakdown could be invalidated based on today’s closing prices – caution seems warranted. We’ll keep monitoring the situation and once we see more bearish confirmations, we’ll let you know.

Summing up, not much happened yesterday in the precious metals sector, but the USD Index ultimately didn’t invalidate its previous breakout, so the outlook for it didn’t actually deteriorate. That’s an improvement for the USD as it appeared to be breaking lower yesterday (and it finally didn’t) and a bearish piece of information for the precious metals market.

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

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): No positions

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

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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