There was quite a bit back and forth movement in gold last week, but the yellow metal finally closed it below the rising long-term support line, which is a bearish sign.
On a short-term note, if we take daily closing prices into account, gold remains within the declining trend channel and there was no breakout last week, only intra-day attempts that didn't succeed.
Gold priced in the euro ended the week below the previous 2013 low, which is a strong bearish sign.
The non-USD gold price closed the week below the rising support line and it was also the lowest weekly close this year. Again, a bearish sign.
Silver closed the week below the long-term rising support line based on weekly closing prices (meaning that there indeed was a breakdown and only a pullback after it).
The XAU Index is visibly below both the rising long-term support line and the previous 2013 low. This breakdown has very bearish consequences. We can say the same about the HUI Index.
The Euro Index closed exactly at the rising support line and at the January 2013 high. It seems quite likely that we saw the end of this rally and the opposite is likely the case for the USD Index. Speaking of the USD, the move below the horizontal support created by the June low was not confirmed by 3 consecutive trading days, so an invalidation here could still be seen. The USD Index has been correcting a sharp rally for about a month now and it formed a flag pattern. These patters are usually followed by moves similar to the ones that precede them. Since we saw a 2.5 index point rally, we could expect something like that shortly as well. This means that we could see a move up to 82.5 or so - the August and September highs. This would likely have a very negative impact on precious metals prices.
Consequently, overall, the outlook for the precious metals sector remains unchanged and bearish. We think that there is a good possibility (75% or so) that we will see at least a $100 decline in gold before we see a rally to new highs.
We might see a bounce when gold reaches its previous 2013 low, so we suggest closing the speculative short positions in both gold and mining stocks when gold moves close to this level (at $1,190). We do not suggest making adjustments to the long-term investment capital when that happens.
To summarize:
Trading – PR: Short position in gold, and mining stocks.
Long-term investments: No positions.
Stop-loss orders for the speculative short position:
- Gold: $1,262
- HUI Index: 214
- GDX ETF: $22.80
As always, we'll keep you - our subscribers - 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) and we will send additional Market Alerts whenever appropriate.
The trading position presented above is the netted version of positions based on subjective signals from your Editor, and the automated tools (SP Indicators and the upcoming self-similarlity-based tool). You will find more information by following links in the summary of the latest Premium Update.
As a reminder, Market 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
