We believe it is now justified to hedge or sell at least a part of one's long-term precious metals investments. The move back above the declining support/resistance line failed and gold is clearly below it ($1,550 at the moment of writing this alert). Moreover, stocks moved lower and they are now below their own long-term support line, which is bearish.
Additionally, opening speculative short positions in the precious metals appears justified as well. Be sure to use only a small amount of capital for it and we suggest putting a stop-loss order at $1,585 in case of gold.
We currently have:
- Breakdown and completion of the head-and-shoulders formation in the TSX Venture Index,
- Breakdown in the silver:gold ratio,
- Breakdown in the gold:bonds ratio.
- Bullish medium-term picture in the USD Index,
- Confirmation of breakdown in financials (Broker/Dealer index failed to move back above its lowest Fibonacci support level),
- Breakdown in the general stock market (visible in S&P 500, DJIA, SPY ETF, and DIA ETF),
- Fed that likely wants to see some kind of carnage before officially announcing QE3 (bearish for stocks, commodities and - currently - precious metals)
- SLV failed to move immediately back above $28 after the recent breakdown (which was the case during both major bottoms: September 2011 and December 2011)
The bullish factors are: gold stocks didn't decline as much as gold did today (at least not yet) and the fact that both previous gold bottoms (Sep-Oct 2011 and Dec 2011 ones) were double bottoms (so today's move lower could be the second bottom of the current double-bottom pattern).
Both bullish factors are rather weak (especially that there were several cases when gold stocks used to "outperform" gold for a few days during the current decline without any significant bullish implications in the following days) when we compare them to the amount and significance of the bearish factors mentioned earlier.
We could have waited for another breakdown before suggesting getting out of precious metals - below $1,520 - however, if a major plunge is upon us, a confirmation of such breakdown could come with gold at $1,400 or so.
Here's our current ranking of ETFs/ETNs for shorting gold (in the order that we like them for hedging purposes - we like DZZ much more than HIG):
GLL
HBD (listed on TSX)
HGD (listed on TSX)
DGZ
SBUL (listed on LSE)
HIG
Here's our current ranking of ETFs/ETNs for shorting silver (in the order that we like them for hedging purposes):
HZD (listed on TSX)
SSIL (listed on LSE)
Here's our current ranking of ETFs/ETNs for shorting platinum (in the order that we like them for hedging purposes):
PTD
In case you missed it in the latest update, you can learn more about hedging by clicking here: http://sunshineprofits.com/files/protected/hedging.pdf
Thank you.
Przemyslaw Radomski
