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 perspective at the moment of publishing this Alert. We are moving the profit-take levels lower.

The miners' underperformance has been truly extraordinary. They seem to have become tired of waiting for gold's and USD's lead and took the baton. Gold declines? Miners decline. Gold pauses? Miners slide, anyway. You may remember that something similar happened in 2013 and if you do, you also know what happened next. And this "next" might make a fortune, for those who are paying attention in this golden classroom.

In short, the extent of miners' performance made the picture even more bearish than it had been previously. In particular, their relentless decline in combination with action around gold's cyclical turning point (lack thereof) made us reconsider our interim target prices for this slide. However, before moving to miners, we would like to discuss the situation in the underlying metals.

Starting With Gold and Silver

In the previous Alerts, we wrote that one of the possible scenarios was that gold would quickly slide close to the cyclical turning point and then reverse at the nearest support. The sharpness of the decline would be the factor determining the likelihood of the rebound. Nothing like that happened. Gold simply took a holiday break from any significant price movement. This tells us that the cyclicality-based turnaround may not happen this time, and thus gold might not reverse (at least not in a profound manner) at the nearest support (rising support line is currently at $1,250). The odds for a lower low have thus increased. The $1,240 or so seems more to be a more likely price target than $1,250.

Let's keep in mind that based on the head-and-shoulders formation that was just completed and confirmed, the target is at about $1,220, so the above-mentioned $1,240 level is conservative from this point of view.

The $1,240 level is supported by the 61.8% Fibonacci retracement based on the previous rally and the similarity to the 2018 slide. Both declines started at about $1,315 and the 2018 decline ended a bit below $1,240. Looking at the analogy between the declines in terms of time, it seems likely that the interim bottom will take place in about a week. To make the comparison easier, we marked with blue arrows both the current situation and the analogous one from 2018.

Silver is moving back and forth, trying to come back above $15 and failing time after time. The interesting thing about this movement is that while silver is not doing much, it still managed to move very close to its declining resistance line. In fact, it was the resistance line that moved close to silver, because of its steepness. The implications are the same as if silver moved to it on its own - silver is likely to slide shortly.

Based on silver's historical performance (when it moves lower, it often truly plunges), on the analogy to 2018, and on the head-and-shoulders pattern that will be completed when silver breaks below the neck level (currently at about $14.75), it seems likely that the white metal will slide to about $14 before forming the next interim bottom.

Miners' Turn Now

Miners' performance is the most bearish thing that we have seen recently. It's a clear confirmation that the precious metals sector is about to dive. Miners broke below their February and March lows and are on their way to the 2019 lows.

We previously expected miners to bottom temporarily in the 150 - 152.5 area but based on how they declined without gold's lead in the last two sessions, it seems that they can move much lower before correcting.

In order for gold to reach its target level of $1,240, it will need to approximately double its up-to-date April decline. If the HUI Index doubles its up-to-date April decline, it will be at about 142, which is well below the above-mentioned 150 - 152.5 area. This means that the levels that we previously expected to stop the decline for a while, are likely to be broken.

This, in turn, means that lower support levels are much more likely to be reached. The HUI Index did bottom at about 142 in late November 2018, but the more profound bottom took place at about 137, and - of course - there is the September 2018 bottom at about 131.

Expecting miners to slide to the 2018 low right away might be an exaggeration, so one of the higher support levels could stop the slide instead. The 140 level is a bit above the August, late-September, early-October and mid-November 2018 lows, so we will use it as our short-term target, instead of the previous 150 - 152.5 area. In case of the GDX ETF, the above level corresponds to $18.25.

The USD Index provides all the necessary confirmations, and more.

The USD Index: the Cherry on the Cake

Exactly one week ago, we wrote the following about the above USDX chart:

The important thing about the USD Index is... Is that the USDX seems to have bottomed or is extremely close to bottoming. The index closed the day a bit lower, but there was no new intraday low. This is a bullish indication, and given the proximity of the rising medium-term support line, the bottom might already be in.

Bottoms are likely to form once the price reaches the support and this may very well be the case also here. In this case, the USDX would first decline to 95.75 before rallying. However, let's not forget that the current situation in the USD Index is similar to the January - April 2008 bottom that looked like an incomplete head-and-shoulders pattern. Back then, the USDX bottomed above its support lines, so something similar might happen (or has already happened) now, too.

The situation developed precisely in tune with the above. What we described has indeed turned out to be the bottom a bit above the rising support line, just like in 2019. The USDX moved above the 50-day moving average and back in 2018 it was the sign that started the huge short-term rally. The implications are very bearish for the precious metals sector.

Summary

Summing up, the breakdown in gold is confirmed from multiple angles, miners underperform to an extreme extent, while silver appears ready to slide any hour now - it's difficult to imagine a more bearish combination for the short term. If it wasn't enough, the USD Index seems to have bottomed. All the above creates an excellent shorting opportunity in the precious metals sector. There will likely come a time later this year when we will get in the back-up-the-truck territory with regard to precious metals, but we are not even close to these discounted price levels. However, it looks like the final slide towards them has already started. Based on the likelihood of seeing a temporary turnaround in the next 1-2 weeks, we might have a good chance of exiting the current short position or even switching to a long one at that time.

Based on mining stocks' weakness and the lack of sharp slide in gold in the last days, we are moving our profit-take levels for gold, silver and mining stocks lower. The profit-take levels in silver are only somewhat affected as they were already relatively low. The GDXJ profit-take price was already reached, but if it was we think that re-entering the short position is currently justified.

As always, we'll keep you - our subscribers - informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full 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 exit profit-take price levels:

• Gold: profit-take exit price: $1,241; stop-loss: $1,357; initial target price for the DGLD ETN: $51.87; stop-loss for the DGLD ETN $39.87
• Silver: profit-take exit price: $14.03; stop-loss: $15.72; initial target price for the DSLV ETN: $37.47; stop-loss for the DSLV ETN $26.97
• Mining stocks (price levels for the GDX ETF): profit-take exit price: $18.41; stop-loss: $24.17; initial target price for the DUST ETF: $34.28; stop-loss for the DUST ETF $15.47

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 target prices:

• GDXJ ETF: profit-take exit price: $26.42; stop-loss: $35.67
• JDST ETF: profit-take exit price: $78.21 stop-loss: $30.97

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