Small Price Moves and Big Changes

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Briefly: In our opinion, no speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert. In other words, we are closing the previous short position and are taking profits off the table.

Contrary to yesterday’s huge issue, today’s alert is going to be rather short as we have not seen big changes on any of the charts that we just covered. If you haven’t read yesterday’s alert so far, we recommend that you do so today as it’s almost entirely up-to-date. In particular, the bearish medium-term factors remain up-to-date.

Almost, because of 2 things:

Gold, silver and GDX closed a little below the previous lows in terms of the daily closing prices
We are one day closer to the interest rate decision and to the end of the week.

Let’s take a look at the charts for details (chart courtesy of http://stockcharts.com).

Short-term Gold price chart - Gold spot price

Short-term Silver price chart - Silver spot price

Gold and silver have indeed declined, but the volume that accompanied the session was relatively low in both cases. With the exception of the July bottom in silver, the white metal used to bottom on low volume in the most recent months. The December 2016 bottom, March 2017 bottom, May 2017 bottom, and early October 2017 bottoms were all accompanied by low volume. There were all confirmed by buy signals from the Stochastic indicator as well and we just saw the same thing.

With RSI below 30, the above bullish indications should not be ignored.

GDX - Market Vectors Gold Miners - Gold mining stocks

The buy signal is small, but present, also in case of the GDX ETF. In this case, the volume was not low, but it was not particularly high either.

In terms of the RSI indicator, miners are right after a buy signal – the indicator moved below the 30 level and then back above it. It now moved slightly below 30 again, but the bullish implications remain in place.

The above, plus the bullish implications of the big weekly decline in platinum that we described in greater detail yesterday is not enough to make the picture bullish as there are multiple strong bearish factors in place, but they are enough to make the situation rather neutral in the short term.

Neutral short-term outlook is not something that justifies a speculative short position, so we think that this position should now be closed and profits taken off the table. If we see more bullish signs, we might open a quick long position, and once we see additional bearish signs, we’ll move back on the short side of the precious metals market. As it seems that the decline is far from being over from the medium-term point of view, we will re-open the short position almost certainly this month. However, it’s too early to say whether we will open a long position in the meantime. For now, staying out of the market seems to be the best choice.

Summing up, the short-term outlook improved for the precious metals sector and became neutral instead of being bearish. The interest rate decision this week is likely to generate some volatility and it could be the case that the precious metals rally at least initially, as that’s what happened in the previous years after December interest rate decisions. The low-volume decline in gold and silver accompanied by a few buy signals from indicators doesn’t invalidate the bearish medium-term outlook. However, the chance that a move higher follows, is too big to be ignored and thus we are closing our speculative short positions. We will most likely re-enter the short position later this month, but it’s too early to say when exactly. It’s also too early to say if we’ll going to enter a speculative long position in the meantime – so far, the situation is neutral, not bullish, so the above doesn’t appear justified.

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

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): No positions (in other words: cash, or positions in other markets, for instance crude oil, stocks, forex and/or bitcoin).

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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