Briefly: in our opinion, full (250% of the regular size of the position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.
Today’s analysis is going to be different than the other ones. We usually discuss what happened on a given day, week, or month and we elaborate on what it changed and what it didn’t change in case of the outlook for gold, silver, and mining stocks. But not today. Today, we are going to focus on what didn’t happen. At the first sight it seems that this means that there was no new signal. That’s not the case. The three important “nothings” that we will discuss in today’s alert have important implications for the following days. That is if one knows where to look.
Let’s start with the first chart (charts courtesy of http://stockcharts.com).
Nothing Changed in the Gold:Silver Ratio
The gold to silver ratio broke above the 2003, 2008, and 2016 highs and it didn’t move back below them. In this case, “nothing” means that the breakout is being verified and with each passing day when the ratio is above the previous highs, the continuation of the rally becomes more and more probable.
Moreover, since the rallies in the ratio tend to be sharp, it means that we can expect the continuation of the move that’s very visible. This most likely means a big decline in silver.
No Changes in Silver
And by saying “no changes”, we mean practically no changes in terms of the daily closing prices. Silver moves back and forth on an intraday basis, but ultimately it still ends the session at about $14.15 - $14.20. At least that’s what we saw in the last 5 sessions.
That’s interesting, because this decline (and many other declines) are characterized by periods of very high volatility that are followed by periods of very low volatility and then the cycle repeats, with no “average volatility” weeks. The pauses that we saw previously took place in early July, late July and early August and then in late August (ok, in case of the latter the volatility was higher than previously).
Taking the above 3 cases into account, we see a very specific pattern. The lower the volatility before the move, the bigger the volatility during the move i.e. the more profound the decline is.
The biggest decline took place just before the middle of August and the back and forth movement that preceded it was the calmest period in many weeks and months. The only case when silver was calmer is… right now. Consequently, we may be just before the biggest short-term decline of 2018. And perhaps of the decade.
Still, knowing how silver likes to provide fake signals just before big declines, we wouldn’t be surprised to see a one final upswing that will get people unnecessarily excited. So, even if we see a sudden $0.50 rally shortly, it will not be a bullish signal by itself. Conversely, if such a move was accompanied by weak mining stock performance, it would be a perfect bearish confirmation. Naturally, such a brief rally is not something that we expect to see, but if it happened, it would not be surprising – it would be within the definition of “normal” in case of silver and its declines.
Still No Changes in the USD Index
Finally, we would like to emphasize that nothing really happened in case of the USD Index. It continues to trade back and forth above the neck level of the reverse head-and-shoulders formation. The formation is therefore active and has profoundly bullish implications. It indicates a move to 102 – 103, which will likely trigger a huge decline in the precious metals sector. As we discussed on Monday, there are multiple other factors that point to the massive decline in the PMs and the situation in the USDX simply confirms them.
Analytical Theft and Recommendation
We recently discovered something “very interesting” and we thought that we’ll share this with you. It will not have implications for the outlook for the PM sector, so you can safely skip this section, if you’re short on time.
Every now and then we see a report being stolen from our archives, our logotypes being removed as someone tries to re-post our analyses as their own. But this was recently taken to a whole new level.
It has come to our attention that there’s an entire Facebook group that is practically solely based on our Gold & Silver Trading Alerts. That’s right, the crooks are copying our analyses without our permission and they are posting it as their own.
Moreover, they are charging for it and they have already received reviews from Facebook users. There are 14 reviews and the average is 4.3 out of 5. And that’s for the analysis that is posted later than what we do on our website - they have to copy it and try to hide their theft by changing the formatting a bit, and that takes time. And yet, people are extremely happy with the outcome.
Here’s the link to these reviews.
If you’ve been reading our analyses for some time, the copy-and-paste scheme will be apparent to you, but if you’re new to our analyses, here’s a few sample links that prove their wrongdoing:
https://www.facebook.com/pg/theneerajgroup/posts/?ref=page_internal - page with the latest posts. Look at the first few posts from the top. For instance here’s the link to what they posted on September the 7th.
And here’s the link to our September the 6th Gold & Silver Trading Alert: Little-known Mining Stock Ratio and Gold-Yen Link
Our report begins with:
“Briefly: in our opinion, full (250% of the regular size of the position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.”
and the first paragraph in the Alert is:
“When gold soars or plunges in terms of the U.S. dollar, everyone is aware of it. When silver does the same, most investors are also paying attention. But, when we move into the realm of other currencies and something important happens in one of the PM-related ratios, almost nobody knows that it happened. Well, important things are happening behind the curtains and we’ll make sure that you’re aware of them and positioned accordingly. Let’s start with the currency part.”
“Their” article begins with:
“At the moment of writing this update our full 250% net short positions in gold, silver and mining stocks are well justified from the risk and reward perspective.”
and the first paragraph is:
“when gold takes off or plunges in terms of the U.S. dollar, everybody knows about it. At the point when silver does likewise, most financial specialists are additionally focusing. In any case, when we move into the domain of different monetary standards and something essential occurs in one of the PM-related proportions, nearly no one realizes that it happened. Indeed, essential things are going on behind the curtains and we'll ensure that you're mindful of them and situated appropriately. How about we begin with the currency part.”
Even the chart at the top of the page is a copy of what we had posted previously - for instance here: Gold: What Happened vs. What Changed
The summary of our Sept. 6th analysis is:
“Summing up, it’s very likely that the pause in the precious metals market is over and the next big move down is already underway. The move is likely to be sharp and the profits on the current short position are likely to change from being huge to being enormous and then finally to being ridiculous.
As always, we’ll keep you – our subscribers – informed.”
and “their” analysis ends with:
“Summing up, it's very likely that the pause in the valuable metals is finished and the following enormous move down is as of now in progress. The move is probably going to be sharp and the benefits on the present short position are probably going to change from being immense to being colossal and afterward at last to being crazy.
As usual, we'll keep you – our supporters – educated.”
It’s kind of funny how they changed the word “precious” in “precious metals”, not even realizing that there is no “valuable metals sector”. Why are they changing every word like that? So that search engines (like Google) won’t view this as duplicate content. But it won’t fool anyone else.
There are even “video analyses” that are simply our analyses that are being read (or that’s just voice synthesizer – we’re not sure) after changing a few words. In the linked video, at 3:03, they read “Silver’s original upside target remains up-to-date. In other words, silver’s upswing to $16.90 - $17 still seems to be the most likely scenario for the next few trading days.” exactly as in the Alert that we had posted a day before.
Before we report this to the authorities and start legal action (the crooks will probably take down their page shortly after we do that), we thought that we would share this with you.
Why? Because that’s the best, most objective, and verifiable recommendation that we can show you.
What kind of products are counterfeited? Only top-notch brands. Louis Vuitton and Hermes bags, finest perfumes, etc. In car tuning, some people strive to make their Pontiac Fiero look like a Ferrari using a dedicated body kit. But you will not find many people wanting their cars to resemble the 1998 Toyota Corolla or Pontiac Aztec. Such body kits probably don’t exist.
Even though the crooks have been able to steal our analyses for a few months, they also provided us with the best confirmation of the quality of our analyses, putting Sunshine Profits in the being-stolen-from top-notch-brands bracket.
The crooks will probably read the above as well, so it might be the case that they take down the entire page before everyone gets the chance to see it, so if the above links don’t work, it means that it happened (naturally, we had already secured the necessary evidence).
Important Analyses
Before summarizing, we would like to emphasize that we have recently posted several analyses that are very important and that one should keep in mind, especially in the next several weeks. If you haven’t had the chance of reading them previously, we encourage you to do so today:
- Dear Gold Investor - Letters from 2013 - Analogy to 2013, which should make it easier to trade the upcoming sizable upswing (if enough factors point to it, that is) and to enter the market close to the final bottom.
- Gold to Soar Above $6,000 - discussion of gold’s long-term upside target of $6,000.
- Preparing for THE Bottom in Gold: Part 6 – What to Buy - extremely important analysis of the portfolio structure for the next huge, multi-year rally in the precious metals.
- Preparing for THE Bottom in Gold: Part 7 – Buy-and-hold on Steroids – description of a strategy dedicated to significantly boosting one’s long-term investment returns while staying invested in the PM sector.
- Gold’s Downside Target, Upcoming Rebound, and Miners’ Buy Plan - details regarding the shape of the following price moves, a buying plan for mining stocks, and a brief discussion of the final price targets for the current decline.
- Gold: What Happened vs. What Changed – discussion of the latest extreme readings from gold’s CoT report
- Key Factors for Gold & Silver Investors - discussion of key, long-term factors that support the bearish outlook for PMs. We are often asked what makes us so bearish – this article is a reply to this question.
- The Upcoming Silver Surprise – two sets of price targets for gold, silver and mining stocks: the initial and the final one.
Summary
Summing up, it’s very likely that the pause in the precious metals market is over and the next big move down is already underway. The move is likely to be sharp and the profits on the current short position are likely to change from being huge to being enormous and then finally to being ridiculous.
We entitled our September the 4th, 2018 Alert Gold and Silver’s Stormy September. The current pause is most likely the naturally occurring calm before the storm. A profitable storm.
As always, we’ll keep you – our subscribers – informed.
To summarize:
Trading capital (supplementary part of the portfolio; our opinion): Full short positions (250% of the full position) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and exit profit-take price levels:
- Gold: profit-take exit price: $1,062; stop-loss: $1,226; initial target price for the DGLD ETN: $82.96; stop-loss for the DGLD ETN $53.67
- Silver: profit-take exit price: $12.72; stop-loss: $15.16; initial target price for the DSLV ETN: $46.97; stop-loss for the DSLV ETN $31.37
- Mining stocks (price levels for the GDX ETF): profit-take exit price: $13.12; stop-loss: $19.61; initial target price for the DUST ETF: $80.97; stop-loss for the DUST ETF $33.37
Note: the above is a specific preparation for a possible sudden price drop, it does not reflect the most likely outcome. You will find a more detailed explanation in our August 1 Alert. 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 target prices:
- GDXJ ETF: profit-take exit price: $17.52; stop-loss: $29.43
- JDST ETF: initial target price: $154.97 stop-loss: $64.88
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
Important Details for New Subscribers
Whether you already subscribed or not, we encourage you to find out how to make the most of our alerts and read our replies to the most common alert-and-gold-trading-related-questions.
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 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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Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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