Briefly: in our opinion, full (250% 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.

Today’s Alert is going be quite short as we have covered the most important of the current developments in the last few Alerts and in today’s issue, we will focus on the only 2 things that may appear bullish at this time: the mining stocks strength in the last few days, and today’s pre-market upswing in the metals.

Let’s take a look at what happened in gold, silver, and mining stocks.

Gold and silver moved visibly lower yesterday, while the size of the decline in the gold stocks was relatively small. This may appear to be indicating strength in the precious metals market. But is it really the case?

Most likely it’s not the case. One of the reasons is that the miners were the first to decline in the recent days, so it simply seems that gold’s reaction was delayed. It’s within the definition of what’s normal at this time and doesn’t appear to be a bullish divergence in gold.

The second reason is the fact that at times the mining stocks tend to follow the general stock market on a very short-term basis. This link usually doesn’t persist for a more than a day or a few days, but it’s enough to raise many eyebrows.

In the last two trading days, the general stock market moved sharply higher, which could have easily caused mining stocks to move higher, or to not fully respond to declines in the prices of the underlying metals.

Given both above-mentioned reasons, it seems that there’s little reason to view recent the performance of the mining stocks as something bullish.

Conversely, even despite the move higher in the general stock market, the HUI Index is confirming the breakdown below the rising support line and silver broke below its rising support line in a quite visible manner. The short-term outlook has therefore deteriorated, not improved.

As far as today’s pre-market upswing in the PMs is concerned, please note that the likely reason behind it is the overnight decline in the USD Index. The index moved down to about 96.51 (the intraday/overnight low at the moment of writing these words).

But, did this move change anything? The previous 2018 high (August 14) in terms of the daily closing prices was 96.61, so today’s pre-market decline is just a post-breakout correction to this level that doesn’t change anything – the implications remain bullish. Without today's closing price it's not correct to say that there was any kind of invalidation of the above breakout as it was based on the closing prices. The move below the high in terms of the closing prices that takes place on an intraday basis is not significant enough to change the outlook, unless it's very significant. The 0.10 move that we've seen so far today is definitely not "very significant".

Moreover, the outlook would remain bullish even if we saw an average-sized move below the August 14 high. Unless the USD closes below the neck level of the previously confirmed inverse head-and-shoulders pattern (currently at about 95.9), the outlook will remain bullish, and the short-term decline will be nothing more than a correction within an uptrend.

Summing up, there are multiple factors in place that point to much lower precious metals and mining stock prices in the coming days and weeks, and it seems that the recent, somewhat strong performance of mining stocks relative to gold doesn’t change anything with regard to the bearish outlook. All in all, it seems that the profits on our short positions will increase significantly very soon.

As always, we’ll keep you – our subscribers – informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full short positions (250% of the full position) in gold, silver and mining stocks are 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: $1,257; initial target price for the DGLD ETN: $82.96; stop-loss for the DGLD ETN $49.27
• Silver: profit-take exit price: $12.72; stop-loss: $15.26; initial target price for the DSLV ETN: $46.97; stop-loss for the DSLV ETN $28.87
• Mining stocks (price levels for the GDX ETF): profit-take exit price: $13.12; stop-loss: $20.83; initial target price for the DUST ETF: $80.97; stop-loss for the DUST ETF $27.67

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 1 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: $31.23
• JDST ETF: initial target price: $154.97 stop-loss: $51.78

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
Editor-in-chief, Gold & Silver Fund Manager

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