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. This position was originally featured on Jan. 12, 2017 at 3:49PM.
Once again not much happened in the precious metals market yesterday – gold moved $3 higher, which is next to nothing. Silver moved 5 cents lower, which is next to nothing as well. The USD Index moved only 0.02 higher, which is – unsurprisingly – also next to nothing. However, in the latter case, this nothing is quite meaningful, because it was yet another day with the USD Index above its declining red resistance line. Let’s take a closer look (charts courtesy of http://stockcharts.com).
Nothing happened in terms of the daily closing prices and the same is happening today – the USD Index’ value remains unchanged. This means that the breakout above the declining resistance line is becoming confirmed. Taking into account yesterday’s session’s intra-day shape, we see that there was indeed a temporary decline back to the support/resistance line, and the support held. This makes the breakout more believable, and today’s close above the line (which is likely) will finally confirm it.
Naturally, the question is: what’s the big deal with a short-term breakout in the USD Index (if what we’re discussing finally is the precious metals market)? We answered this question on Monday, when we discussed the big picture for the USD Index, but we would like to discuss it once again as we are still receiving questions about it.
The long-story-short version is that based on the long-term analogy, the USD Index seems to have completed the corrective downswing and the short-term signals (reversal that we saw several days ago and the recent breakout along with its confirmation) confirm that the decline is indeed already over. Both pictures (the long-term one, which was featured on Monday and the short-term one, featured above) imply that a move well above the previous highs in the USD Index has just begun, even though it is barely visible. The size of the upcoming rally in the USD is likely to be huge – with the target at / above the 108 level. Such a big move in the USD is extremely likely to (almost “has to”) correspond to a huge move lower in the precious metals market. This move appears to be underway and that’s the big deal with the above short-term breakout in the USD Index.
Summing up, the bearish signals that we discussed this week remain in place as the USD Index seems to be confirming its short-term breakout. This breakout is likely to result in a rally that is likely to continue for at least several months and take the USD Index well above its 2016 high.
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: $1,263; initial target price for the DGLD ETN: $81.88; stop-loss for the DGLD ETN $48.47
- Silver: initial target price: $13.12; stop-loss: $18.07; initial target price for the DSLV ETN: $46.18; stop-loss for the DSLV ETN $22.24
- Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $26.34; initial target price for the DUST ETF: $143.56; stop-loss for the DUST ETF $21.37
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: $45.31
- JDST ETF: initial target price: $104.26; stop-loss: $10.78
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:
At the end of 2016, Straftor, a global intelligence company, released a new edition of its Annual Forecast. What can we learn from this publication?
Stratfor’s Forecast for 2017 and Gold
S&P 500 index gained 0.1% on Wednesday, as it extended its short-term consolidation along record highs. Will the uptrend continue today? Is holding short position still justified?
=====
Hand-picked precious-metals-related links:
Germany brings its gold stash home sooner than planned
JPMorgan Chase Back in the Hot Seat for Rigging Silver Prices
Russia Richest Man Delists Gold Miner in London on Low Value
=====
In other news:
Dollar Policy Confusion Keeping Currency Traders Up at Night
Oil fuels stocks rally, bond market pressure eases
Five Major Risks Investors Think You Should Worry About
The last thing Europe needs: another Greek crisis
=====
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
