Briefly: In our opinion, full (150% of the regular full position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.
In yesterday’s alert we wrote about how boring the situation in the precious metals market had become from the medium-term perspective and that it was not something that suggested further lack of action, but the opposite. The implications that we made yesterday remain up-to-date, even though gold, silver, mining stocks and the USD Index seem to have all returned to the levels they all saw just a few days before, thus further confirming the “not much changed recently” statement. However, how much did really change? (chart courtesy of http://stockcharts.com).
Let’s start today’s discussion with the gold market.
Gold moved higher, but not above the previous highs, the rising thick red resistance line and not visibly above the declining long-term resistance line. The sell signals from the indicators were not invalidated. The volume was a bit lower than what we had seen during Tuesday’s decline. Overall, the situation in the gold market didn’t really change and what we wrote yesterday remains up-to-date.
Silver is once again at the intersection of several strong resistance lines. Since the white metal is more or less where it was about a week ago, our previous comments on the above chart apply once again:
The same goes for silver, but with the declining resistance line being even more profound (the declining dashed green line is based on a bigger number of important tops) and an additional red rising resistance line in place. Both lines (and approximately the 50-week moving average) coincide more or less where silver closed yesterday’s session. The combination of long-term resistance levels is something that’s very likely to keep the rally in check – at least in terms of the weekly closing prices.
The GDX ETF once again broke above the declining resistance line, but since this move is not confirmed yet and the sell signal from the Stochastic indicator remains in place, it doesn’t seem that this breakout is of particular importance.
The sell signal remains in place also in case of the HUI Index and in this case we also see that gold stocks closed the day without a breakout above the rising black resistance line.
The USD Index turned south yesterday and it seems to us that the traders are simply not believing that a bigger rally in the USD Index can truly be underway. So far, the August upswing in the USD was quite in tune (with regard to the size and time) with the previous corrective upswings that didn’t manage to change the downtrend.
Since people are not taking the USD rally seriously yet, they are not reacting to it in a normal way. Still, if the USD rally continues (it is likely to continue based on the weekly reversal that we saw at the beginning of this month) and it becomes obvious that this upswing is something more than just a correction within a decline, traders are likely to catch up with their reaction – and precious metals are likely to catch up with their declines.
Summing up, precious metals returned to their recent price levels as it doesn’t seem that traders believe in the USD’s rally. Still, the latter’s weekly reversal suggests that what we are seeing is something more than just another corrective upswing and thus metals are still likely to catch up with their decline in the coming days and weeks. The move back to the previous levels confirms the previous observation of the volatility in the precious metals market (the lack thereof from the medium-term point of view) and the implications remain as we discussed them yesterday – the metals and miners seem to be preparing for a big move. It’s likely that we won’t have to wait much longer for the final downswing and THE bottom.
As always, we will keep you – our subscribers – informed.
To summarize:
Trading capital (supplementary part of the portfolio; our opinion): Short positions (150% 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 target price levels / profit-take orders:
- Gold: initial target price level: $1,063; stop-loss: $1,317; initial target price for the DGLD ETN: $81.88; stop-loss for the DGLD ETN $44.57
- Silver: initial target price: $13.12; stop-loss: $19.22; initial target price for the DSLV ETN: $46.18; stop-loss for the DSLV ETN $17.93
- Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $26.34; initial target price for the DUST ETF: $143.56; stop-loss for the DUST ETF $21.37
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 initial target prices:
- GDXJ ETF: initial target price: $14.13; stop-loss: $45.31
- JDST ETF: initial target price: $417.04; stop-loss: $43.12
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.
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Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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