Gold and the rest of the precious metals sector declined heavily yesterday and they are declining today as well (at least so far).
During volatile times on the market, the question is if the move is already over or not, and why. There are not many times when we can answer the "why" part of the question, but in this case, the gold-usd link allows us to do that.
The point is that while gold has already declined significantly, the move in the USD Index was actually quite small. Since USD has further to go - and move higher - we can surely expect that gold and the rest of the sector will move even lower. Thus, the decline in the metals and miners is not over yet.
Please note that gold moved below $1,305 today and we previously wrote about realizing gains and closing the speculative short position at this level. We also wrote about purchasing gold and platinum with half of your investement capital at this level.
At this time we think that it's a good idea to get back on the long side of the market with half of your long-term investment capital in case of gold and platinum (and to remain out of the market in case of silver and mining stocks). At the same time, it seems to be a good idea to keep the speculative short position intact.
Summing up, we suggest keeping speculative short position in gold, silver and mining stocks and going long with half of one's long-term capital in case of gold and platinum.
The stop-loss levels for the current short positions are:
- Gold: $1,428
- Silver: $23.55
- GDX: $31.3
- HUI Index: 292
We currently think that gold will temporarily move below $1,285, but pull back soon and close that week (the one in which it moves below $1,285) around this level. How low gold will temporarily go is unclear - perhaps it will form an intra-day bottom close to $1,200 or even $1,100 (yes, the current lack of reaction to dollar's weakness might be suggesting a move that low).
Here's the up-to-date version of our trading/investment plan:
- When silver moves to $18.20 close the speculative short position and in silver get back in the market with half of your long-term silver investments.
- When the XAU Index moves to 84, close the speculative short position in mining stocks and get back in the market with half of your long-term mining stock investments.
We will send a separate confirmation to get fully back in.
As far as trading capital is concerned we currently think that placing distant bids is appropriate. They may not get filled, but if we place them too high, we risk being thrown out of the market via stop-loss orders or margin calls if the volatility gets too high (and it's unpredictable how volatile the markets will get as gold is in a reverse parabola right now). If they don't get filled, we plan to go long after gold has pulled back significantly on an intra-day basis on huge volume (thus creating a bullish candlestick - probably a "hammer candlestick").
The distant buy price levels are:
- Gold: $1,120 (stop-loss: $970)
- Silver: $16.20 (stop-loss: $14.4)
- $HUI: 155 (stop-loss: 137)
As we wrote, these levels are distant and will probably not be reached, but if they do, they will present a great buying opportunity, one that will likely disappear almost immediately - that's why we we think that placing orders in advance is appropriate.
As always, we'll keep you updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) at least until the end of June, 2013 and we will send additional Market Alerts whenever appropriate. We have prolonged the time in which you - our subscribers - will receive Market Alerts daily for another full month.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
