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 posting today’s Gold & Silver Trading Alert a bit later than usually and there is a good reason for it. Both precious metals moved higher in today’s pre-market session and based on how they react to the resistance levels that we discussed in yesterday’s Alert, the short-term implications might vary. Consequently, we wanted to be sure that what we send you is not going to get outdated an hour or two after we post it. Now, once the very initial part of the US session is behind us, we have more information and something much more interesting to report other than simply stating that yesterday’s analysis remains up-to-date.

To be clear, it does remain up-to-date. We simply have one additional sign that we can comment on. Before we move to it, here’s a reminder of how we described the above picture yesterday:

The most interesting confirmation comes from the mining stocks that you see in the lower part of the above chart. We marked three tops that the miners formed, and it took several days at least before the tops were completed. Gold, silver, and miners have all moved to their respective resistance levels. Gold and miners moved to their previous tops, and silver moved to its previous low. Can the PM market move even higher in the very short run? Yes. It’s not very likely, but it can happen. We marked additional resistance levels on the above chart. In the case of gold, the resistance is at about $1,310, whereas the resistance for silver is at about $15.50 and for mining stocks it’s at 177. The latter is particularly doubtful, because miners tend to underperform at or right before the local tops.

We are featuring these additional resistance levels, not because they are likely targets. We are featuring them to keep you informed and provide you with an early heads-up on what might happen if the PMs move higher – these are the levels that might be reached. Naturally, reaching none of them would invalidate the very strong medium-term bearish points that we made in the earlier Alerts.

If the analogy to 2012 repeats itself to the letter, we can expect gold to form the next local (not final) low at about $1,260 – the 50% Fibonacci retracement level based on the previous upswing.

The thing that determines whether the pause either ends right away, or continues for several more days might be the US dollar.

Gold’s continuous futures contract moved to $1,309.60 today and silver’s intraday high is $15.55 – that’s very close to what we described as the possible resistance level should the USDX decline and the PMs respond by moving temporarily higher. At the moment of writing these words, gold is at $1,308 and silver is at $15.48. We marked the current gold and silver prices with tiny blue lines on the above chart – metals’ prices are not updated during the session, but the above workaround should put today’s price moves in the proper perspective. All in all, nothing really changed based on today’s session with regard to gold and silver.

The interesting phenomenon that we would like to point your attention to is the performance of the gold miners. They moved higher, but very insignificantly so. They did move to new immediate-term highs (at about 175), but they retraced back to about 174 – erasing half of what they had just gained. This is a subtle, immediate-term sign of miners’ underperformance, which is something that we see close to and at local tops. We emphasized that miners likely to underperform at the top and today’s session appears to be the early sign that the PMs and miners are indeed topping.

In yesterday’s analysis, we wrote that we can expect the USDX to move to about 96.6 before it rallies once again. At the moment of writing these words, the USDX is already approximately at this level, so the downside looks very limited. It may even be the case that we are posting this Alert right at the USDX bottom and at PMs’ top.

Summary

Summing up, it’s almost certain that the next big move lower has already begun and that the 2013-like slide is in its early stage. Based on the updated version of the 2013-now link, the implications are even more bearish than we had initially assumed. The downside target for gold remains intact ($890), and the corrective upswing that we just saw seems to be rather natural part of the bigger move lower – not a beginning of an important move higher. And it seems that the corrective move higher in the PMs is either over or about to be over shortly.

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: $1,062; stop-loss: $1,357; initial target price for the DGLD ETN: $82.96; stop-loss for the DGLD ETN $39.87
• Silver: profit-take exit price: $12.32; stop-loss: $16.44; initial target price for the DSLV ETN: $47.67; stop-loss for the DSLV ETN $23.68
• Mining stocks (price levels for the GDX ETF): profit-take exit price: $13.12; stop-loss: $24.17; initial target price for the DUST ETF: $76.87; stop-loss for the DUST ETF $15.47

Note: the above is a specific preparation for a possible sudden price drop, it does not reflect the most likely outcome. You will find a more detailed explanation in our August 1st Alert. 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: $17.52; stop-loss: $35.67
• JDST ETF: initial target price: $143.87 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

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.

=====

Latest Free Trading Alerts:

The question is not ‘if’ but ‘when’. This is what more and more analysts think about the US recession. We invite you to read our today’s article about the NBER’s recession indicators and find out whether the economic slump is really coming soon – and what it all means for the gold market.

NBER’s Recession Indicators and Gold

=====

Thank you.

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