Briefly: in our opinion, full (150% 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. We will likely increase the size of this position shortly.

We can feel the pressure building up in the markets covered. All the reversals, different lines pointing in the same direction – a reversal of huge importance. We are getting there, step by step. What is the likelihood of yet another slick move up before THE reversal itself takes place?

Let’s consult the charts for answers.

Gold Reversal – Getting Closer

Yesterday, we have indeed seen a daily reversal in gold, and it was a bullish one. Of course, that’s not what we were discussing while writing about THE reversal that’s confirmed by multiple vertexes of important triangles. The bullish reversal took place on low volume, which suggests that it should not be trusted. And we don’t trust it. We do, however, think that it might generate one final upswing that would not extend beyond this week, perhaps not beyond this session. Why?

Because the price also moved back to the previously broken resistance line (the June 2018 top) and verified it as resistance. Technically, the breakout is confirmed, and gold is ready to move higher. This is clearly visible, and many very short-term traders may act on it, thus creating a quick rally, even without an additional reason for it.

But is it likely to change anything with regard to the big decline to the final lows in gold and silver? No. Gold verified the breakout above the June 2018 top, but it remains below the May 2018 top. Gold recently tried to close above it, but it failed, and we saw only intraday attempts to move higher. We might see such attempt also later today. This would very likely be followed by the key reversal and THE decline.

Also, please note that the decline that started in April took a similar path. After the final top, there was an initial downswing that included a bullish daily reversal, then the final pop-up higher, and then the decline truly started. We marked both (April 2018 and today) reversals with black arrows.

Silver Reversal – Getting There, Too

In case of silver, the bullish reversal is even clearer, so all the points that we made while discussing the gold chart apply also here. The volume was relatively low, so it didn’t confirm the bullish nature of the move. It may be able to generate an upswing, but nothing to call home about.

The above chart, just like the gold one, includes black arrows that show similarly “bullish” reversals right after the initial tops. In early 2019, it was followed by a very modest upswing before the decline continued. In early 2018, it was followed by a substantial move higher. And in September 2017, it was followed by a decent daily upswing that was only of an intraday nature.

Given that silver already formed two quick run-ups that ended in volatile tops this year, it seems that we should expect a rather smaller attempt to move higher than one that results in a breakout to new highs. Besides, let’s not forget about silver’s very long-term resistance line.

Silver might move higher, even above this important line. After all, silver is known for forming fakeouts instead of breakouts. But such a move would not likely be significant. Ultimately, this line is critical so any deviation from the regular course of action (strong resistances are not easily broken) should only be temporary and rather small.

In terms of the intraday price moves, silver already invalidated the breakout above it, showing how the above works in practice. We might see another attempt, but it would very likely fail.

Gold Stocks’ Temporary Sign of Strength

Gold stocks moved lower on an intraday basis and then moved back up, still showing some strength. Did they invalidate or confirm the breakout above the resistance lines? It’s not clear, because the answer would depend on the way we look at the price. Intraday prices imply invalidation, daily closing prices imply confirmation. The latter are generally more important, however, given the situation in gold and silver, it seems simply safer to say that the situation with regard to today is rather unclear and mostly pointing to another daily upswing that would fail to hold.

Please note that the RSI indicator just touched 70, which is a classic sell signal. Moreover, as soon as the price declines, we’ll get a sell signal from the Stochastic.

USD Index Update

The USD Index moved a bit higher (in terms of price) and right to the triple-vertex-based reversal (in terms of time). This means that we might see another temporary move lower in the USDX, and  if we do, it would not be anything to be concerned about. It would be a natural course of action that would very likely be followed by much higher USDX values. And consequently, much lower precious metals values.

Summary

The strong resistance levels in gold and mining stocks were reached and they stopped the rally in terms of the daily closing prices, so the medium-term outlook didn’t change. Based on today’s pre-market weakness, the recent breakout in the mining stocks is likely to be invalidated shortly. The bearish outlook points to reversals being already here with us.

The very important detail about the most recent price moves is that they took place in light of the very positive news from the Fed. The thing is that the dovish comments from the Fed (“the case for raising rates has weakened somewhat”) should have caused a much more spectacular rally. Despite the intraday rallies that we saw on Thursday and Wednesday, gold moved just $2 higher, while it could have easily (based on the news alone) rallied $30 - $80 by now.

One of the most bullish situations in any market is when everything that could go wrong, actually does… It already did. The best confirmation of such bullishness is when the market doesn’t decline despite the facts that should make it decline. We seem to have just witnessed the exact opposite of the above. Gold doesn’t really want to move higher from here, and its technical situation is perfect for a start of a profound decline to the final lows of the prolonged slide that started in 2011.

The upside remains limited, while the downside remains enormous. The turning points are being reached this week, so we may either see a very brief upswing in the metals before the huge decline starts, or the latter may start right away.

Consequently, the short position remains justified, but given the level of volatility that we just saw, it’s possible that we will still see some short-term strength. We plan to add to our short positions shortly – we’ll aim to do so at the final short-term upswing at THE reversal.

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

To summarize:

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

• Gold: profit-take exit price: $1,062; stop-loss: $1,337; initial target price for the DGLD ETN: $82.96; stop-loss for the DGLD ETN $41.27
• 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 $24.18
• Mining stocks (price levels for the GDX ETF): profit-take exit price: $13.12; stop-loss: $23.27; initial target price for the DUST ETF: $80.97; stop-loss for the DUST ETF $16.27

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: $34.62
• JDST ETF: initial target price: $154.97 stop-loss: $35.87

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.

Thank you.

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