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 point of view at the moment of publishing this Alert.

Gold's cyclical turning point is here, and gold is still in the pause mode instead of declining (or rallying) profoundly. But during yesterday's session, miners first tested the previous December lows and then rallied, closing right at the 50-day moving average. Does this reversal - along with gold's turning point - indicate a major turnaround?

We doubt that.

The volume that accompanied yesterday's "reversal" was low, which means that it was not a true reversal. The bulls didn't engage the bears in a fierce fight, because there was none. It was a daily pause, which simply started and ended at similar price level with an intraday decline. The fact that there was no comeback above the 50-day moving average - only a move to it - further indicates that nothing really changed and that the bearish outlook for the short term remains intact.

Besides, please note that the last time GDX declined from similar levels - in early November - it also paused around $27. Back then, the quick comeback was even bigger than what we saw right now. Consequently, the odds are that the decline will resume relatively soon - quite likely very soon.

Ok, but what about gold's cyclical turning point?

Those Turning Points

Gold's turning point might simply mark the end of gold's tiny corrective upswing, similarly to how it performed in June. Back then, it was the end of the pause within a rally and now gold is declining, but the overall implications remain intact. In other words, turning point at this time does not imply that the decline is already over.

Moreover, please note that a pause at this stage of the decline is perfectly normal - that's what happened in similar declines that we marked with blue. Gold corrected a bit after the initial daily decline. The decline continued shortly thereafter in both similar cases.

Most of what we wrote previously remains up-to-date - we are quoting the relevant parts below:

Gold is likely to decline at least as much (approximately) as it had declined during the recent short-term declines. We copied the November decline to September and to the current situation. It's clear that the September decline was almost identical. Applying the same size and pace of decline to the current situation, we get a prediction that gold will decline to about $1,415 before correcting.

This level is additionally supported by the 38.2% Fibonacci retracement based on the 2018 - 2019 rally, and the August low. Moreover, given the pace at which gold declined previously (...), gold may not have time to decline more before correcting.

The lower target area is bigger and stronger. It is based on the rising medium-term support line, the declining support line (red), the 50% Fibonacci retracement, and the July low. Most importantly, it's supported by the long-term gold chart.

The rising medium-term support line that we already mentioned above crosses with the support line that's based on the 2016 and 2018 highs, which makes the $1,360 (approximately) support particularly strong. Moreover, let's keep in mind that since these two major lines are crossing, we're likely to see a reversal at that time.

Interestingly, this triangle-vertex-based reversal corresponds to the reversal from the previous short-term gold chart. This means that both reversals confirm each other and that they are even stronger as a result. In other words, gold is very likely to form a reversal close to the end of the year.

That's also when the nearest very long-term triangle-based reversal is scheduled.

This means that the odds for a major reversal at the end of the year increase even further.

Let's keep in mind that there's an additional silver triangle-vertex-based turning point right before Christmas. And there's also one a bit earlier.

There are two declining red resistance lines that are based on the September top. One of them is based also on the October high, and the other is based on the November high.

The support line that was just broken is based on four lows, so it's quite important. It was first based on the May and November lows, but then it stopped silver's declines twice in November, before finally being broken this month.

These lines cross in the not-too-distant future. The first vertex of the triangles based on the above-mentioned lines is on Monday, December 16, and the second is on December 20.

These reversals are in perfect tune with silver's True Seasonal pattern.

Reversals and Seasonality

The white metal is likely to bottom close to the end of the year - perhaps about a week earlier.

In case of gold, the vertex-based turning point is right at the end of the year, so the overall signs are not perfectly aligned. But this doesn't prevent us from having a strategy for the following weeks.

The strategy is to stay alert to even the smallest signs of strength once we move into the second half of December and act on them, if they present themselves while gold is at or very close to its price targets, or if gold moves very close to the end of the year without getting close to the target areas. We will likely adjust the current short position (perhaps close it or switch to a long position) close to the end of the year, but we might do so also sooner if enough bullish signs emerge.

Naturally, the numerous other factors that we discussed previously continue to support lower precious metals prices in the following months. If you haven't read these analyses - especially the ones from the "critical" section, we strongly encourage you to do so. These are not quick reads, but they are really well worth the time spent reading them.

Key Factors to Keep in Mind

Critical factors:

• The USD Index broke above the very long-term resistance line and verified the breakout above it. Its huge upswing is already underway.
• The USD's long-term upswing is an extremely important and bearish factor for gold. There were only two similar cases in the past few decades, when USD Index was starting profound, long-term bull markets, and they were both accompanied by huge declines in gold and the rest of the precious metals market
• Out of these two similar cases, only one is very similar - the case when gold topped in February 1996. The similarity extends beyond gold's about a yearly delay in reaction to the USD's rally. Also the shape of gold price moves prior to the 1996 high and what we saw in the last couple of years is very similar, which confirm the analysis of the gold-USD link and the above-mentioned implications of USD Index's long-term breakout.
• The similarity between now and 1996 extends to silver and mining stocks - in other words, it goes beyond USD, gold-USD link, and gold itself. The white metal and its miners appear to be in a similar position as well, and the implications are particularly bearish for the miners. After their 1996 top, they erased more than 2/3rds of their prices.
• Many investors got excited by the gold-is-soaring theme in the last few months, but looking beyond the short-term moves, reveals that most of the precious metals sector didn't show substantial strength that would be really visible from the long-term perspective. Gold doesn't appear to be starting a new bull market here, but rather to be an exception from the rule.
• Gold stocks appear to be repeating their performance from 20 years ago, which means that a bottom in the entire precious metals sector is quite likely to form at much lower prices, in about a year

Very important, but not as critical factors:

• Long-term technical signs for silver, i.a. the analogy in terms of price to what we saw in 2008, shows that silver could slide even below $10.
• Silver's very long-term cycles point to a major reversal taking place right now and since the most recent move was up, the implications are bearish (this is also silver's technical sign, but it's so important that it deserves its own point)
• Long-term technical signs for gold stocks point to this not being a new gold bull market beginning. Among others, it's their long-term underperformance relative to gold that hint this is rather a corrective upswing within a bear market that is not over yet.
• Record-breaking weekly volume in gold is a strong sign pointing to lower gold prices

Important factors:

• Extreme volume reading in the SIL ETF (proxy for silver stocks) is an effective indication that lower values of silver miners are to be expected
• Silver's short-term outperformance of gold, and gold stocks' short-term underperformance of gold both confirm that the precious metals sector is topping here
• Gold topped almost right at its cyclical turning point, which makes the trend reversal more likely
• Copper broke below its head-and-shoulders pattern and confirmed the breakdown. The last time we saw something similar was in April 2013, when the entire precious metals sector was on the verge of plunging lower.

Moreover, please note that while there may be a recession threat, it doesn't mean that gold has to rally immediately. Both: recession and gold's multi-year rally could be many months away - comparing what happened to bond yields in the 90s confirms that.

Summary

Summing up, our short position became profitable practically immediately, and the odds are that these profits will grow more shortly. The outlook for the precious metals sector is very bearish for the next months, weeks and - quite likely - days. Gold is likely to decline in the following days and weeks, with a likely corrective upswing starting close to the end of the year, and a possible smaller correction in the meantime. It could be the case that we're going to take (partial or complete) profits from the current short position this month, but it's too early to say with certainty if and when that will happen.

As always, we'll keep you - our subscribers - informed.

To summarize:

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

• Gold futures: profit-take exit price: $1,391; stop-loss: $1,573; initial target price for the DGLD ETN: $36.37; stop-loss for the DGLD ETN: $25.44
• Silver futures: profit-take exit price: $15.11; stop-loss: $19.06; initial target price for the DSLV ETN: $24.88; stop-loss for the DSLV ETN: $14.07
• Mining stocks (price levels for the GDX ETF): profit-take exit price: $23.21; stop-loss: $30.11; initial target price for the DUST ETF: $14.69; stop-loss for the DUST ETF $6.08

In case one wants to bet on junior mining stocks' prices, here are the stop-loss details and target prices:

• GDXJ ETF: profit-take exit price: $30.32; stop-loss: $44.22
• JDST ETF: profit-take exit price: $35.88 stop-loss: $11.68

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

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