Gold's Upside Target Reached - What's Next?

tools spotlight

Briefly: In our opinion, full (100% of the regular size of the position) speculative long positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert. We are moving the initial target levels for mining stocks and related ETFs higher. The targets for metals remain unchanged.

How high can gold rally? To $1,270 - $1,290. That’s what we wrote on December 14. Stockcharts’ intraday high for yesterday’s session is $1,271.40, which means that our target area has already been reached. However, gold will remain in the target area even if the rally continues for another $20 or so. Which scenario is likely to play out and when is it likely to play out? Gold’s chart provides answers, so let’s start today’s analysis by taking a closer look at it (chart courtesy of http://stockcharts.com).

Short-term Gold price chart - Gold spot price

The price of gold has been moving steadily higher in the past several days and it moved to the lower border of our target area.

So, is the rally ending?

Ending – perhaps. Ended – most likely no.

The upper part of the target area is where most resistance levels coincide and since we haven’t seen any meaningful bearish confirmations, gold is likely to move higher in the short term. These resistance levels are:

The rising red resistance line based on the previous major lows in terms of the daily closing prices.
The declining black resistance line based on the September and November tops in terms of both: intraday and closing prices.
The 38.2% Fibonacci retracement based on the September – December decline.

Moreover, the upper part of the target area (above $1,280) is slightly above the 50-day moving average and in the previous two months gold reversed and started to decline only after it moved a bit above this MA.

There is an additional thing that the above chart tells us.

It answers the “when” question.

There are two turning points that are about to be in play. The first one is today or tomorrow and it’s based on the apex of the triangle created by the two lines that we discussed in the bullet points. OK, what was the apex technique again? We first described the apex technique on October 17 when we discussed the following HUI Index chart:

HUI Index chart - Gold Bugs, Mining stocks

Let’s move back to the HUI Index chart once again as it features a new technique that we’ve been validating for the precious metals market and it finally seems that it’s justified to include it in our set of tools. The technique is the triangle apex reversal. The technique is quite straightforward and even though it may appear somewhat random (it mixes both price and time), it works surprisingly well.

Moving to the point, the triangles are usually drawn in order to create support and resistance levels, check whether a breakout or breakdown is more likely and estimate the likely size of the move that follows the breakout or breakdown. However, if one continues to draw the triangle borders until they cross, they will get a quite precise time target. You can see the above in action on the HUI Index chart. The triangle’s apex is a bit below 185, in early September. The former is irrelevant, but the time wasn’t. The HUI Index indeed topped in early September.

We noticed that the more visible the triangle is and the greater number of extremes confirm its existence, the more reliable the prediction for the turning point becomes.

The apex of the triangle in gold is either today or tomorrow. Naturally, the turnaround is not imminent, but the above is enough for one to be on the lookout for bearish confirmations and be prepared to take profits by closing one’s long position shortly.

The second turning point is based directly on gold’s cyclical nature. It’s on January 8th, so it’s still relatively far, however, at the same time it’s something that we should keep in mind. If gold tops shortly as the first triangle’s apex suggests, then it could start a decline and form a temporary bottom close to January 8th.

Alternatively, we could see another wave up and the final top close to January 8th. Could the counter-trend upswing really last that long?

Yes, and we need to keep both possibilities in mind while monitoring the market for bullish and bearish confirmations. For now, we have an increasing number of bullish signs for the short term.

HUI Index chart - Gold Bugs, Mining stocks

GDX - Market Vectors Gold Miners - Gold mining stocks

First of all, mining stocks rallied outperforming gold, which is a classic bullish sign. The sizable volume during yesterday’s upswing adds to the bullish signal’s credibility. If the top was just around the corner, weakness in the miners should be present and we are seeing something opposite.

Two days ago, we wrote the following:

The target area for mining stocks remains unchanged – between the 50-day moving average and the rising resistance lines. The latter seems to be a more likely target as its reinforced by the 200-day moving average.

The February, April, June, and July tops were characterized by the same pattern – the HUI Index broke through the 50-day moving average and reversed right at or in close proximity to the 200-day MA. This analogy makes the 194 or so the most likely target for the short term.

Yesterday’s strong rally made the above even more up-to-date and consequently, we are moving up our initial target levels for mining stocks and related ETFs.

Short-term Silver price chart - Silver spot price

Silver moved higher just like gold and miners, but we didn’t see any exceptional strength in it. Without this important bearish confirmation, it seems that the top is not yet in. Will it be in after today’s or tomorrow’s session? Knowing silver’s tendency to ignite big intraday moves, it’s certainly possible. At the same time, it’s possible that the rally will continue for several additional days. The best approach is to wait for the white metal to start its strong outperformance of gold and take action at that time. Naturally, we’ll keep you informed.

UUP PowerShares DB US Dollar Bullish ETF

The USD Index could still move lower before turning up again – the October and November lows could be touched, but we think that a confirmed breakdown below them is not likely. The USD’s decline is likely to result in an upswing in the precious metals sector, so the above chart more or less confirms what we wrote earlier today.

The USD is close enough to the previous lows to reach them within just one or two sessions, but at the same time it’s far enough for the decline to these levels to take several days. Based on the way the USD declined in October, the former is more likely.

Summing up, the medium-term outlook for the precious metals market didn’t change based on last and this week’s developments and it remains bearish, but the short-term outlook is bullish. The declining volume in gold might indicate that the top is going to be seen relatively soon, but it doesn’t seem that it has been formed yet. Yesterday’s strength in mining stocks and the lack of it in silver suggest that the precious metals sector is going to move higher, at least in the very short term.

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

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Long positions (100% 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 targets:

Gold: initial target level: $1,279; stop-loss: $1,236; initial target level for the UGLD ETN: $10.58; stop-loss for the UGLD ETN $9.38
Silver: initial target level: $16.48; stop-loss: $15.58; initial target level for the USLV ETN: $11.18; stop-loss for the USLV ETN $8.88
Mining stocks (price levels for the GDX ETF): initial target level: $23.27; stop-loss: $21.08; initial target level for the NUGT ETF: $31.87; stop-loss for the NUGT ETF $23.78

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 exit prices:

GDXJ ETF: initial target level: $33.97; stop-loss: $29.78
JNUG ETF: initial target level: $17.77; stop-loss: $11.78

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

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.

=====

Latest Free Trading Alerts:

Retail stores have been disappearing from the U.S. economy in 2017. What does it mean for the gold market?

Retail Apocalypse and Gold

S&P 500 index lost 0.1% on Wednesday, as investors hesitated following recent record-setting rally. Will uptrend continue? Or is this some topping pattern ahead of downward correction?

Topping Pattern Or Just Consolidation - Will Stocks Continue Higher?

=====

Hand-picked precious-metals-related links:

Indian Couple Opts For Bitcoin Instead Of Gold As Their Wedding Present

Vast deposits of precious metals held in Delaware

PAMP app allows for authenticity verification of certain coins and ingots

=====

In other news:

House gives final approval to tax bill, delivering victory to Trump

Factories Hum From Detroit to Dortmund as World Economy Perks Up

European Banks’ Post-Crisis Litigation Could Cost $100 Billion

Japan's central bank leaves its monetary policy unchanged