Briefly: In our opinion, full (200% of the regular size of the position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.

“Some things never change. Some things do.” You might be wondering why we are quoting one of the lines from the Matrix movie. The reason is because that’s exactly what we can say about the gold market and the price patterns in it. The thing that never changes is the fact that gold will always somehow react to the fundamental news, but the way it reacts will vary over time. Moreover, this quote could describe the situation with the current analogies and price patterns in gold, silver and mining stocks. Because of the trade-war-based rally, they changed, but something didn’t. The outlook that they imply.

Let’s take a closer look at the patterns, starting with gold (chart courtesy of http://stockcharts.com).

Gold’s Upcoming Reversal

The final implication based on the above chart didn’t change. Gold is still likely to decline from the current price levels and it’s likely to form a bottom close to the April 9th, as that’s where we have a triple reversal date confirmed by apex reversal triangles.

The triple top analogy seems to remain intact and the implications are bearish. Just like the third major top in early September 2017 ended the consolidation and started the decline, it seems that we saw an important high this week.

Each high is lower than the preceding one, which is in tune with what we saw in mid-2017 and during the 2012-2013 time frame. Indeed, the similarity to the previous patterns remains in place and the implications are bearish.

All in all, not much changed in the case of the above gold charts. The two remaining charts that feature silver and mining stocks will be more interesting, though.

Silver Changes and Lack Thereof

The particularly noteworthy thing on the white metal’s chart is the way in which we can view the self-similar pattern between now and back in November 2017. After the early-March volatile daily upswing, we thought that it was a direct analogy to the mid-November upswing that had been the final rally before the decline. And this might have been the case but based on the fundamental news (Powell-related-uncertainty and trade conflict) gold rallied and thus silver more or less had to rally as well. Consequently, the pattern changed, but not completely. The pattern still seems to be intact, but in a slightly different way.

You see, there were actually three smaller tops in October and November 2017 before silver started to slide – if we count the early-November high as well. The early-March high was the second top and we’re seeing the third – and most likely final – top right now. In fact, it seems that we already saw it this week. Silver moved above the 50-day moving average and once again invalidated this move almost instantly. It’s moving lower also during today’s pre-market trading.

Consequently, even though silver’s self-similar pattern is slightly different, it still has the same bearish implications.

Self-similarity in Gold Stocks

Interestingly, gold stocks seem to be forming a self-similar pattern of their own. In the case of the HUI Index, the thing that we see is a similarity between the current consolidation and the consolidation that we saw in November 2017, which confirms the analogy in the silver market.

Back in late October 2017, gold miners broke below the rising support line that’s based on the late 2016 bottom and one of the 2017 bottoms. In February 2018, gold miners broke below the rising support line that’s based on the late 2016 bottom and another 2017 bottom.

Both breakdowns were followed by an immediate move higher. The February comeback was huge and several times bigger than the late-October rally, but that’s most likely due to the triangle-apex-based reversals that were pointing to major reversals at that time (for both the bottom and the top).

Yes, the apex-based reversals can be that efficient, which is exactly why we dedicated one of the previous weekends to estimating all the apex-based reversals for the rest of the year.

On the above chart you can see both reversals marked with green and red dashed lines.

Moving back to the current self-similar pattern in gold stocks, in both cases after the initial rally and move back above the rising support line, the HUI declined once again and formed a new short-term low. Then we saw another rally, more or less to the previous high, and a subsequent decline. That’s the action that we saw most recently and that’s exactly what preceded the bigger decline in early December 2017. Naturally, the implications of this self-similar pattern are bearish.

Summary

Summing up, based on the trade conflict between the U.S. and China, gold, silver and mining stocks moved higher recently, but it didn’t change the implications of the key short- and medium-term analogies. The long-term signals were not invalidated either and thus the overall outlook for the following weeks remains bearish.

As always, we will keep you – our subscribers – informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full short positions (200% 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:

• Gold: initial target price: $1,218; stop-loss: $1,382; initial target price for the DGLD ETN: $53.98; stop-loss for the DGLD ETN $37.68
• Silver: initial target price: $14.63; stop-loss: $17.33; initial target price for the DSLV ETN: $33.88; stop-loss for the DSLV ETN $21.48
• Mining stocks (price levels for the GDX ETF): initial target price: $19.22; stop-loss: $23.54; initial target price for the DUST ETF: $39.88; stop-loss for the DUST ETF $21.46

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: $27.82; stop-loss: $36.14
• JDST ETF: initial target price: $94.88 stop-loss: $41.86

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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