Briefly: in our opinion, full (250% of the regular size of the position) speculative short position in gold, silver, and mining stocks is justified from the risk/reward point of view at the moment of publishing this Alert.

Gold, silver, and mining stocks reversed practically exactly at their double triangle reversal point and the short positions that we opened along with taking profits off the table from the previous long positions, became profitable almost instantly. There's quite a decline to catch here, and it seems that only a small part thereof had already taken place.

PMs Reversing

The above chart clearly shows how important the triangle reversals were recently. The two first reversals were local bottoms before the final part of the upswing, and the third one - confirmed by two separate reversals from silver and miners - marked the rally's final top. This is likely the case with gold, crystal clear with silver, and it might not seem to be the case yet in case of the miners.

In fact, at first sight it may appear that the outlook for gold, silver, and mining stocks is bullish, because the decline in mining stocks is not very big and thus miners are actually showing strength. This is not necessarily the case.

It's not one of the most popular gold trading techniques, but the mining stocks can have this tendency to show a kind of stillness (stiffness if you will) after the top, but they get back to their normal behavior shortly. Please note what happened on September 5^th - on the first day of the September decline. Gold and silver took a big dive, but miners declined visibly less. Did it change anything? No. That was still a major top, and when silver's initial slide turned then into a pause, miners caught up with the pace at which the metals had declined previously. Similar action is likely to follow also this time.

The GDX ETF declined back below the 50-day moving average and we saw a sell signal from the Stochastic indicator shortly after it reached above 80. That's what confirmed both the early-November and the early-September tops. Moreover, please note that GDX's Friday's decline took place on big volume, which further validates the theory that the top for the recent decline is already in.

Moving to silver, please note that it ended the previous week at a price level that we haven't seen since August.

Silver Also Hints at the Upcoming Decline

The breakdown below the November lows is confirmed by the weekly close and significant volume, but not yet by three consecutive daily closes. Still, given the fact that silver reversed almost exactly at its triangle-based reversal and after touching its 50-day moving average make the confirmation of breakdown very likely.

The nearest support levels are the intraday mid-August low, and the 61.8% Fibonacci retracement based on May - September rally. However, the decline to these levels would be relatively small. Too small. The two short-term declines that we saw in September and in November are at least twice as big as what we saw recently, and this means that if this rally is only to be "normal", the move lower should be much bigger.

This means that silver is likely to decline further - likely below $16.

There's a good reason to believe that this decline will be more than just twice of what it's been so far.

The USD Index Throws Its Weight Behind the Coming Decline Too

Gold and silver plunged in early November in response to soaring USD Index. Since that time, the USDX declined and moved relatively close to its early-November low. Neither gold, nor silver moved close to their early-November highs. All they did was to correct part of their November decline. It took just one daily upswing in the USD Index from the short-term lows to make silver break below its own November low.

The link between precious metals and the USDX strongly favors the continuation of metals' weakness. If it wasn't for the late-November and early-December decline in the USDX, both gold and silver would have probably already been trading at much lower price levels. USD's pullback triggered a pause in the decline, which at the same time prepared the PMs for the next big downswing.

Gold and - especially - silver are already magnifying the bearish signs from the USDX, and it seems that they will get much more of them in the following day(s).

The USDX bottomed slightly below our target area (just one daily close below it) and it invalidated the breakdown below its rising support. Invalidations of breakdowns are strong bullish signs. We previously wrote that the invalidation of breakout that we saw in late-November was a bearish sign for the short term and indeed, a quick slide followed. We now saw something quite the opposite. The difference is that this time, the support that was not broken, is stronger. This means that this bullish invalidation is also more important than the previous bearish invalidation.

With soaring USD Index and the gold-silver-USD link in place that magnifies USD's signals, the short-term outlook for the precious metals market looks very bearish. And it's not too late to take advantage of it

It might be too late to take advantage of it, if gold is to bottom close to its next cyclical turning point and in tune with its True Seasonal tendencies.

Gold Seasonality Is Lending Support Too

Seasonally, gold tends to bottom close to the middle of the month. It's not enough to report that gold will indeed bottom this or next week, but it's not the only thing that points to such an outcome.

The turning point is just around the corner, and if gold is to decline at a similar pace as it did in September and November, then it's likely to bottom slightly after the turning point. This "slightly after the turning point" is in the middle of the month, which is in perfect tune with what we wrote earlier.

The seasonality itself suggests a comeback before the end of the month and this might indeed be the case, but it could also be the case that we'll see yet another downturn and then the final bottom right at the end of the year. Why? Because of the triangle-vertex-based turning point that we have at the end of 2019. There is also one more - indeed a long-term oriented - turning point.

The Support, the Turning Point and Gold's Path

The rising medium-term support line crosses with the support line that's based on the 2016 and 2018 highs, which makes the $1,360 (approximately) support particularly strong. Moreover, let's keep in mind that since these two major lines are crossing at the end of the year, we're likely to see a reversal at that time.

This triangle-vertex-based reversal corresponds to the reversal from the previous short-term gold chart. This means that both reversals confirm each other and that makes them even stronger as a result. In other words, gold is very likely to stage a reversal close to the end of the year.

Naturally, the reversal could be a local top, but this would imply a decline in January, and January is seasonally one of the strongest months for gold. If there is going to be some kind of major reversal at the end of the year, then gold can't rally relentlessly between mid-December and February. There has to be a local top or bottom in between, perhaps both. The scenario in which gold declines shortly, but then corrects close to the middle of the month and then declines once again until the end of the year, seems to be the most likely outcome based on the data that we have right now.

Before summarizing, we would like to reply to a question that we received from a few of our subscribers recently. The question centers on how long it could take before gold resumes its long-term bull market. In short, it could take - approximately - another year before that happens. The chart below provides our current best estimate of what's likely to happen in the following months - our gold forecast.

Before dismissing the above chart as too bearish and ridiculous, please note that gold declined in a similar way in 2012 and 2013, and - most importantly - that gold should decline substantially if the USD Index is to rally considerably. And the USD Index is after a huge, long-term, and extremely important breakout that was more than confirmed.

Gold is likely to decline similarly to how it declined in the mid-90s and gold miners appear to be repeating the pattern from about 20 years ago. There are quite a few other medium-term factors that suggest that the decline in gold, silver, and mining stocks that started in 2011, is not over yet.

Naturally, there will be counter-trend rallies along the way, and some of them will be tradable, just as the recent gold rally that we profited on. Our Gold Trading Alerts will include such details as soon as they emerge.

You will find links to additional long-term factors supporting the above gold price path in the following section.

Key Factors to Keep in Mind

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.
• Gold stocks appear to be repeating their performance from 20 years ago, which means that a bottom in the entire precious metals sector is quite likely to form at much lower prices, in about a year

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.

Summary

Summing up, our short position became profitable practically immediately, and the odds are that these profits will grow more shortly. The outlook for the precious metals sector is very bearish for the next months, weeks and - quite likely - days. Gold is likely to decline in the following days and weeks, with possible corrections probably starting close to the middle of the month and toward its end. It could be the case that we're going to take (partial or complete) profits from this position this or the next week, but it's too early to say that with certainty right now.

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 binding exit profit-take price levels:

• Gold futures: profit-take exit price: $1,391; stop-loss: $1,573; initial target price for the DGLD ETN: $36.37; stop-loss for the DGLD ETN: $25.44
• Silver futures: profit-take exit price: $15.11; stop-loss: $19.06; initial target price for the DSLV ETN: $24.88; stop-loss for the DSLV ETN: $14.07
• Mining stocks (price levels for the GDX ETF): profit-take exit price: $23.21; stop-loss: $30.11; initial target price for the DUST ETF: $14.69; stop-loss for the DUST ETF $6.08

In case one wants to bet on junior mining stocks' prices, here are the stop-loss details and target prices:

• GDXJ ETF: profit-take exit price: $30.32; stop-loss: $44.22
• JDST ETF: profit-take exit price: $35.88 stop-loss: $11.68

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.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager