Real Action Still Ahead #2

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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.

The precious metals market has been moving back and forth and there is not much that we can add to what we’ve already written about it in the past several days as the situation and its implications are not changing. The key session of the year – Friday’s huge-volume reversal in gold – continues to have very bearish implications for the following weeks. However, at the same time, the traders seem to be waiting for the Jackson Hole Economic Symposium and comments from it. The signs continue to support lower PM prices in the future, but many traders are simply news-oriented and don’t pay attention to the former. Let’s see what’s new on the charts (chart courtesy of http://stockcharts.com).

In today’s alert, we’re going to discuss all precious metals charts at the same time as they all feature the same signal.

Short-term Gold price chart - Gold spot price

Short-term Silver price chart - Silver spot price

GDX - Market Vectors Gold Miners - Gold mining stocks

Gold, silver and mining stocks have all moved a little higher on low volume. That’s a classic pre-decline breather and since it took place in all 3: gold, silver and miners – it strongly suggests that the entire sector is pausing and that the move that it wants to move is down.

To be honest, that’s the only new development on the charts as the Stochastic indicator is very close to its signal line without showing a confirmed move in any direction. Once PMs move lower, the subsequent sell signal is likely to add fuel to the decline, thus making it more significant.

Short-term US Dollar price chart - USD

The USD Index once again moved below the lower border of the flag pattern, but the previous days proved that without a confirmation, such a move can’t be trusted.

Interestingly, yesterday’s price movement was much smaller than what we saw when USD moved below the flag for the first time and even though the USD is not yet back in the flag, gold and silver are declining today anyway.

The above-mentioned relative performance of the PM market (compared to the USD movement) confirms the earlier price-volume analysis. The precious metals market seems to be preparing itself for a big move lower, however, many traders don’t want to open any new positions before the Jackson Hole. Consequently, the way we summarized yesterday’s alert is also a good way to summarize the situation today:

Summing up, Friday’s session in gold seems to be the most important session of 2017 as confirmed by the volume and since this volume accompanied a clear and significant reversal, the implications are very bearish for the short and medium term. The lack of real action immediately thereafter is not a bullish sign on its own – it could simply be the case that the market is waiting for the outcome of the important Jackson Hole Economic Symposium before starting the next big move. Nonetheless, the USD’s comeback and – in particular – gold’s profound reversal suggest that the next big move in PMs is going to be to the downside.

The price-volume link and PMs relative performance compared to the USD Index seem to confirm the bearish outlook.

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 $41.88
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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