Briefly: in our opinion, full (250% of the regular size of the position) speculative short position in gold, silver, and mining stocks is justified from the risk/reward perspective at the moment of publishing this Alert.

Gold has turned vigorously lower yesterday. And not only gold at that. Red, red, everywhere in precious metals you looked. The silent scream we wrote about in the Wednesday’s alert brought serious repercussions. Immediately and just in time to reap the benefits. Earlier today however, gold and silver appear to be making a comeback. Is there more to the story? You bet. Let’s examine together.

In yesterday’s extensive Alert, we let you know that today’s and Monday’s Alerts are going to be rather short as we provided update on more long-term oriented factors well in advance. However, today’s Alert will still be longer than we originally thought that it would be, because there is one immediate issue that we need to address in a timely fashion. As you may have guessed correctly, it’s today’s pre-market upswing and its implications.

Both gold and silver moved higher, but since silver’s move was the more volatile one, the analogies it brings are clearer. That’s why we will focus on the white metal today.

Let’s see what happened yesterday exactly.

The white metal moved decisively lower and erased most of its recent upswing, but it didn’t break below the previous lows. In yesterday’s Alert, we wrote that based on the price levels reached during the recent upswing and based on the shape of the reversal, the current situation is similar to two cases from July 2018. In both cases, silver moved approximately back to the 20-day moving average and declined only thereafter. Since that moving average had just been reached, it seemed quite likely that we would see a decline – and we did.

Now, the key thing that we would like to emphasize today, is that back in July, silver didn’t end its decline in just one day. It kept on declining for several weeks (in fact, for months) and it was not a straight line down. Of course, that’s nothing new as no market moves straight up or down. The key part of the above analogy that we can apply to today’s pre-market upswing is that the decline that immediately followed tops in early July and late July 2018 was not immediately followed by subsequent daily slides. Instead, it was followed by brief upswing that was then followed by a bit more of an intraday back-and-forth movement. None of these moves were meaningful and they didn’t last for long anyway. After several days, silver resumed its course and declined substantially.

Today’s pre-market upswing may appear encouraging. In light of the above however, how bullish can it really be? What a rhetorical question as both similar situations that we recently saw actually point to this kind of action as a natural part of the big move lower.

It’s not bullish – it’s a part of a much bigger move lower, so all the bearish points that we have made in the recent Alerts remain up-to-date.

Summary

Summing up, it’s almost certain that the next big move lower has already begun and that the 2013-like slide is in its early stage. Based on the updated version of the 2013-now link, the implications are even more bearish than we had initially assumed. The downside target for gold remains intact ($890), and the corrective upswing that we just saw seems to be rather natural part of the bigger move lower – not a beginning of an important move higher. And it seems that the corrective move higher in the PMs is either over or about to be over shortly.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full short position (250% of the full position) in gold, silver, and mining stocks is 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: $1,357; initial target price for the DGLD ETN: $82.96; stop-loss for the DGLD ETN $39.87
• Silver: profit-take exit price: $12.32; stop-loss: $16.44; initial target price for the DSLV ETN: $47.67; stop-loss for the DSLV ETN $23.68
• Mining stocks (price levels for the GDX ETF): profit-take exit price: $13.12; stop-loss: $24.17; initial target price for the DUST ETF: $76.87; stop-loss for the DUST ETF $15.47

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 1st 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: $35.67
• JDST ETF: initial target price: $143.87 stop-loss: $30.97

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.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager