Briefly: in our opinion, full (100% of the regular size of the position) speculative long positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.
In yesterday’s first Alert, we discussed multiple bullish signals for gold and we emphasized that without seeing a few additional confirmations it will not be justified to enter a long position for gold, silver, and mining stocks. And we saw them.
Since we sent you an intraday update just a bit over an hour before the end of yesterday’s session, there’s little new to comment on since.. Moreover, our comments from yesterday’s regular Alert remain up-to-date, so today’s analysis will mostly take form of providing more details to the factors that made us open long position in the precious metals sector yesterday.
We will therefore quote parts of yesterday’s intraday Alert and then provide a chart illustrating the comments along with a follow-up.
In today’s first (regular) Gold & Silver Trading Alert, we wrote about the price target for the HUI Index at about 170.60 (it’s precisely 170.57) and we indicated that this level could be reached today.
It was almost reached as the HUI Index temporarily declined to 170.64 (just 0.07 above the above-mentioned level). This means that the key 61.8% Fibonacci retracement based on the entire 2016 rally was practically reached. This is yet another factor that has bullish implications for the short term.
Let’s take a look at the HUI Index chart (charts courtesy of http://stockcharts.com).
After we wrote the above, the HUI Index moved even lower – to 170.45, which is a bit below the above-mentioned 61.8% Fibonacci retracement. Does this small breakdown have bearish implications? Not really.
There were only 4 attempts to move below this retracement. In one case (February 2018), the retracement was touched and triggered a powerful short-term rally. On the remaining 3 cases (once in December 2016, twice in March 2018), the time when HUI moved below the retracement was an excellent time to go long as it was followed by an invalidation and a rally. The one in late 2016 and early 2017 was quite sizable, but we don’t think we’ll see anything like that this time. Still, the short-term implications are bullish.
On a relative basis, we can also say that the mining stocks are showing strength. While GLD moved to new intraday lows and SLV underperformed, GDX didn’t move below yesterday’s intraday low. In fact, at the moment of writing these words GDX is trading at $21.83, which is only 5 cents below the June 20 intraday low of $21.88. GLD is at $118.86, which is $1.30 below the June 20 intraday low of $120.16.
On the above chart it’s clearly visible how gold and silver really declined while GDX moved only a bit lower. The silver price has definitely magnified gold’s decline, which served as another bullish sign. Silver tends to get ahead of itself during particularly emotional price extremes, and while we usually see this during tops when silver outperforms, this technique can also be used to detect bottoms.
After we wrote the above, GDX declined to its Tuesday’s intraday low, but didn’t decline below it. Consequently, GDX remained strong and the implications remained bullish for the short term.
Also, while we’re featuring the above chart, please take a moment to note how well the black reversal candlestick worked in case of GLD when it was confirmed by silver’s outperformance and miners’ underperformance.
Speaking of relative performance, the USD Index is up by 0.56 today and gold is down by just $4.70 (at the moment of writing these words). That’s a very strong performance, because gold “should have” declined much more given a 0.49 rally in the USDX.
According to Stockcharts’ data, the USD Index ended yesterday’s session 0.62 higher, while gold was down by $3.80. This resilience tells us that gold really doesn’t want to decline without a breather and that’s something we should strongly take into account.
In today’s regular Gold & Silver Trading Alert, we wrote that more bullish signs would be required for us to open a long position here. We have more bullish signs and thus we view speculative long positions in gold, silver, and mining stocks as justified. For the record: at the moment of writing these words gold is trading at $1,253.90, silver is trading at $16.09 and GDX is trading at $21.83.
After we wrote the above, silver moved sharply lower and then back up. It looks like a perfect scenario – by the time you read our alert, you were able to enter the position at even more favorable prices than the ones above.
According to kitcosilver.com, silver’s intraday low was $15.90, just 2 cents above our stop-loss level. If you’ve ever wondered why we usually provide targets and stop-loss levels at prices that are not rounded, but rather a few cents above/below a round number, you now see why. At times the markets view round numbers as support or resistance and reverse from them. Consequently, it’s usually best to have an order several cents away from the round number to increase the chance of a profit-take level being reached or a stop-loss level not being reached. Yesterday’s price action is an example for the latter.
Speaking of silver, the above chart shows the reversal. In case of the continuous futures contract, the intraday low was $15.94 and the white metal ended the session at $16.15 after a clear reversal. The volume wasn’t huge, but it was big and in line with the volume levels that accompanied previous several reversals from these price levels that we’ve seen this year. Consequently, the implications are bullish.
Gold touched the key support line right at the cyclical turning point and after a sizable decline, with the daily RSI below 25 – that’s simply a very bullish combination. Each of the above is a sign pointing to higher gold prices in the near term, but seeing them simultaneously makes the overall outlook much more bullish.
Summary
Summing up, gold and silver reached our downside targets very close to several reversal dates and it was accompanied by numerous bullish confirmations, which makes the current short-term outlook very bullish. The medium-term outlook remains bearish, but there are so many bullish signs for the short term that we think that a temporary long position is justified anyway.
As always, we’ll keep you – our subscribers – informed.
To summarize:
Trading capital (supplementary part of the portfolio; our opinion): Full long positions (100% 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:
- Gold: initial target price: $1,278; stop-loss: $1,239; initial target price for the UGLD ETN: $10.19; stop-loss for the UGLD ETN $8.97
- Silver: initial target price: $16.54; stop-loss: $15.88; initial target price for the USLV ETN: $9.97; stop-loss for the USLV ETN $8.78
- Mining stocks (price levels for the GDX ETF): initial target price: $22.39; stop-loss: $21.47; initial target price for the NUGT ETF: $25.36; stop-loss for the NUGT ETF $21.84
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 – but 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: $32.97; stop-loss: $31.58
- JNUG ETF: initial target price: $14.38 stop-loss: $12.38
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
Founder, Editor-in-chief, Gold & Silver Fund Manager
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