Briefly: in our opinion, full (250% of the regular size of the position) speculative short position in gold, silver, and mining stocks are justified from the risk/reward point of view at the moment of publishing this Alert. We are moving the stop-loss levels higher in case of gold and silver.

Jackson Hole is over, and so are the subsequent U.S. - China trade war news. While gold rallied and USD sold off, take a look at where they're right now. Did the surprise news of escalation throw the many chart messages off kilter? Far from it, and let's go and make sense of the recent developments' fit with the charts one by one.

Today's Alert is a follow-up to what we wrote on Friday in both: the first regular Gold & Silver Trading Alert, and then in the intraday Alert. Let's start with the intraday analysis.

We the following about the news that hit the market:

Powell's comments didn't reveal much, but the subsequent portion of Twitter politics did. Trump just called all US companies to get out of China (precisely: to start looking for alternatives to China).

Of course, this news emerged just as the USD Index was showing strength. It's a desperate attempt to push the dollar lower. The USD is down by about 0.5% today, which is notable but not critical. This is a small breakdown below the rising support line that we discussed in today's regular Gold & Silver Trading Alert - an unconfirmed one. The previous decline below this line was also triggered after Trump's comments on China... And the small breakdown marked the end of the decline.

One important thing is the USD's likelihood to invalidate the breakdown and rally once again, but the other thing is that...

After today's move (and in light of the upcoming reply to China's tariffs) there's not much more that Trump can do with just talking. While it doesn't mean that he's out of bullets, it appears that his ability to easily shock the market with China-related comments is now much more limited than before. This means that not only it might be the case that the USD is bottoming right now, but that it might now be starting the rally that will not be stopped by additional threats.

The opposite applies to the precious metals market. Gold and silver moved close to their previous highs, but didn't rally above them. The mining stocks underperformed as they didn't reach their previous highs today. There might be an additional reaction to comments on tariffs but it's unlikely that they will add much to what was already been said or that they will increase the level of market's surprise.

The China threat level reached extreme and metals are not breaking to new highs while miners are underperforming - this is bearish. Consequently, the outlook remains unchanged and so do long- and medium-term points that we made in the recent Alerts.

The USD Index: Technicals vs. Twitter Politics

Here's the USD chart that we were referring to:

... And here's what's happening in the USD Index today:

The USD Index is soaring back up! More than half of Friday's decline was invalidated. Even if nothing happened in between the sessions, this would have been a sign of strength. But something did happen. After the markets have already closed, Trump took the tariff threats to the next level, increasing the supposed September 1 tariff on $300 billion worth of goods from 10% to 15%, and increasing the supposed October 1 tariff on $250 billion worth of goods from 25% to 30%.

In Friday's intraday Alert, we wrote that the USD might be starting a rally that will not be stopped by additional threats. We just saw additional - and severe - threats. The USD Index was supposed to decline, and instead, it moved higher as soon as forex trading resumed this week.

This is profound. And it's more important than the news itself - which might be quickly reversed. What we see is hard data showing that the USD Index simply refuses to go lower despite bearish news. This is major confirmation of all the bullish points for the USD Index that we discussed previously. There are very long-term trends that will push the U.S. currency higher, and the resilience that we are seeing right now is a confirmation that this rally is indeed taking place.

What about gold and the rest of the precious metals market? As the tensions increased and USD declined, the gold price was more or less forced to move higher. But, how did it really react? How does it perform today, given the increased tariff threat?

Gold, Charts and Trade Wars

It rallied initially, but it moved back down, thus forming a shooting star reversal candlestick. The day is far from being over, so the candlestick is not complete, but the initial move that we saw already appears bearish. It is not only the USD Index that is no longer willing to react to the news that emerge - gold appears to be doing the same thing.

It's also important to keep in mind gold's long-term chart - the resistance that is currently being tested is very important - these are the late 2011 and mid 2012 lows that are being verified. The lows in terms of the daily closing prices are $1,549.20, and $1,541.40. In today's pre-market, gold moved above the higher of these levels and immediately reversed. It's now trading below the lower level.

Silver moved higher, outperforming gold on a very short-term basis, which is a topping sign that confirms silver's analogous signals from the previous weeks. Seeing this signal multiple times means that it's even stronger than it has been before.

Now, the key question regarding these short-term price moves is if it changes or invalidates any of the very bearish points that we outlined in the previous week:

Critical factors:

• The USD Index broke above the very long-term resistance line and verified the breakout above it. Its huge upswing is already underway.
• The USD's long-term upswing is an extremely important and bearish factor for gold. There were only two similar cases in the past few decades, when USD Index was starting profound, long-term bull markets, and they were both accompanied by huge declines in gold and the rest of the precious metals market
• Out of these two similar cases, only one is very similar - the case when gold topped in February 1996. The similarity extends beyond gold's about a yearly delay in reaction to the USD's rally. Also the shape of gold price moves prior to the 1996 high and what we saw in the last couple of years is very similar, which confirm the analysis of the gold-USD link and the above-mentioned implications of USD Index's long-term breakout.
• The similarity between now and 1996 extends to silver and mining stocks - in other words, it goes beyond USD, gold-USD link, and gold itself. The white metal and its miners appear to be in a similar position as well, and the implications are particularly bearish for the miners. After their 1996 top, they erased more than 2/3rds of their prices.
• Many investors got excited by the gold-is-soaring theme in the last few months, but looking beyond the short-term moves, reveals that most of the precious metals sector didn't show substantial strength that would be really visible from the long-term perspective. Gold doesn't appear to be starting a new bull market here, but rather to be an exception from the rule.

Very important, but not as critical factors:

• Long-term technical signs for silver, i.a. the analogy in terms of price to what we saw in 2008, shows that silver could slide even below $10.
• Silver's very long-term cycles point to a major reversal taking place right now and since the most recent move was up, the implications are bearish (this is also silver's technical sign, but it's so important that it deserves its own point)
• Long-term technical signs for gold stocks point to this not being a new gold bull market beginning. Among others, it's their long-term underperformance relative to gold that hint this is rather a corrective upswing within a bear market that is not over yet.
• Record-breaking weekly volume in gold is a strong sign pointing to lower gold prices

Important factors:

• Extreme volume reading in the SIL ETF (proxy for silver stocks) is an effective indication that lower values of silver miners are to be expected
• Silver's short-term outperformance of gold, and gold stocks' short-term underperformance of gold both confirm that the precious metals sector is topping here
• Gold topped almost right at its cyclical turning point, which makes the trend reversal more likely
• Copper broke below its head-and-shoulders pattern and confirmed the breakdown. The last time we saw something similar was in April 2013, when the entire precious metals sector was on the verge of plunging lower.

Moreover, please note that while there may be a recession threat, it doesn't mean that gold has to rally immediately. Both: recession and gold's multi-year rally could be many months away - comparing what happened to bond yields in the 90s confirms that.

Does Friday's or today's price movement change any of the above? In general, it doesn't. The only small exception is the short-term performance of gold stocks relative to gold - they were not weak, but rather performed normally. Silver still outperformed, so overall the relative dynamics in the PM market favor lower prices in the following weeks.

Friday's and today's pre-market price moves don't invalidate any other of the above points. We insist that you pause and take a moment to read each point separately (and perhaps visit the linked article for details). Practically each of them, especially from the top 2 categories, is more important than Friday's and today's price moves in gold and silver, but it's easy to forget that when the prices move in a volatile manner.

The USD Index refused to fall hard despite more bearish news, and gold reversed today's early gains, which suggests that we may not need to wait for the big decline in the precious metals sector for much longer.

As the key bearish points remain intact, the outlook for the precious metals sector remains bearish.

Summary

Summing up, taking the big investment picture into account, out of the following: gold, silver, gold stocks, silver stocks, the recent upswing was visible only in case of gold. Most of the precious metals portfolio: silver, gold miners, and silver miners suggest that what we saw in the last several months is nothing more than a corrective upswing within a bigger downtrend. There are multiple signs pointing to much lower precious metals and mining stocks prices in the following weeks and practically none of them were invalidated by Friday's and today's pre-market price moves. Conversely, USD's almost immediate comeback and gold's reversal suggest that both markets are barely reacting to additional trade threats. This means that such news are unlikely to prevent the main trends (up for the USD and down for gold) from unfolding for much longer, if at all. One should be prepared for much lower, not higher precious metals prices in the following months.

Since the outlook hasn't changed and the downside targets remain intact, but the prices are higher, we are moving the stop-loss levels for gold and silver higher. If the position was closed based on the overnight price moves, it seems that re-opening them is justified from the risk to reward point of view.

As always, we'll keep you - our subscribers - informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full speculative 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: $1,241; stop-loss: $1,603; initial target price for the DGLD ETN: $51.87; stop-loss for the DGLD ETN: $23.37
• Silver: profit-take exit price: $13.81; stop-loss: $19.13; initial target price for the DSLV ETN: $39.08; stop-loss for the DSLV ETN $16.37
• Mining stocks (price levels for the GDX ETF): profit-take exit price: $17.61; stop-loss: $33.37; initial target price for the DUST ETF: $32.28; stop-loss for the DUST ETF $5.78

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 target prices:

• GDXJ ETF: profit-take exit price: $23.71; stop-loss: $48.42
• JDST ETF: profit-take exit price: $73.32 stop-loss: $9.67

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

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
Editor-in-chief, Gold & Silver Fund Manager