Briefly: in our opinion, full (300% of the regular position size) speculative short positions in mining stocks are justified from the risk/reward point of view at the moment of publishing this Alert.

The signals that we received from the markets yesterday confirm points that I made in yesterday’s relatively long Gold & Silver Trading Alert, which means that I have very little to add today. Yesterday’s comments simply remain up-to-date, and if you haven’t had the chance to read them, I encourage you to do so today.

We saw another confirmation from the mining stocks yesterday.

The miners moved lower, even though gold ended yesterday’s session higher. The apples to apples comparison in case of the miners vs. gold link is the ETF to ETF comparison. Precisely, GLD ETF vs. GDX ETF. GLD was up by 0.79% yesterday, while GDX was down by 1.28%. While Wednesday’s relative performance might have been not clear (as miners were flat instead of declining), yesterday’s relative price action is crystal-clear. Miners are underperforming gold, which means that they most likely want to move lower. In other words, the implications are bearish.

Moreover, gold’s rally by itself is not particularly significant given what happened in the USD Index. The latter declined quite visibly, temporarily declining to 90.50.

As the downside target for the USD Index is relatively close (proximity of the 90 level – perhaps a bit below it), it seems that gold will be able to launch only a relatively small rally from here, and my yesterday’s comments on the upside targets for gold and miners remain up-to-date:

Can miners move higher from here? Of course, they can, but this move is likely to be limited. While the USD Index could move to about 90, gold could move to about $1,851 - $1,866, and the GDX ETF could rally to $36.52 or so, which is the lowest daily close of October. In fact, miners could even correct to the mid-November high of about $38. Still, it’s likely that this would be just a very temporary phenomenon.

In other words, based on the analysis of gold’s self-similar patterns, the analogy present in the USD Index, and the recent (lack of) strength in the mining stocks, it seems that the additional decline in the USD Index would be likely to trigger the same kind of reaction in the gold mining stocks that we saw yesterday. However, it would likely be limited.

The outlook for the precious metals market remains bearish for the next few weeks.

Please note that the above are only possible, not very likely targets – definitely not likely enough for us to close our short position or switch to a long one. In fact, miners might not even manage to exceed this week’s high before sliding.

Summary

Summing up, the next big move lower in the precious metals market is definitely underway and it seems that it will take another 1-5 weeks (likely in mid-December or in its second half) before the decline ends. It seems that the part of the slide in gold that takes place below $1,700 is going to see a silver catching up with the decline in gold and miners. This week’s upswing seems to be a relatively normal bounce within a bigger decline.

Please note that even Warren Buffett is limiting his exposure to gold.

As the USD Index appears to have ended forming its broad bottom pattern, it’s likely to rally, causing gold to slide. At some point gold is likely to stop responding to dollar’s bearish indications, and based on the above analysis, it seems that we might expect this to take place in December.

Naturally, everyone's trading is their responsibility. But in our opinion, if there ever was a time to either enter a short position in the miners or increase its size if it was not already sizable, it's now. We made money on the March decline, and on the March rebound, with another massive slide already underway. 

After the sell-off (that takes gold to about $1,700 or lower), we expect the precious metals to rally significantly. The final decline might take as little as 1-5 weeks, so it's important to stay alert to any changes.

Most importantly, please stay healthy and safe. We made a lot of money on the March decline and the subsequent rebound (its initial part) price moves (and we'll likely earn much more in the following weeks and months), but you have to be healthy to enjoy the results.

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

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full speculative short positions (300% of the full position) in mining stocks is justified from the risk to reward point of view with the following binding exit profit-take price levels:

Senior mining stocks (price levels for the GDX ETF): binding profit-take exit price: $32.02; stop-loss: none (the volatility is too big to justify a SL order in case of this particular trade); binding profit-take level for the DUST ETF: $28.73; stop-loss for the DUST ETF: none (the volatility is too big to justify a SL order in case of this particular trade)

Junior mining stocks (price levels for the GDXJ ETF): binding profit-take exit price: $42.72; stop-loss: none (the volatility is too big to justify a SL order in case of this particular trade); binding profit-take level for the JDST ETF: $21.22; stop-loss for the JDST ETF: none (the volatility is too big to justify a SL order in case of this particular trade)

For-your-information targets (our opinion; we continue to think that mining stocks are the preferred way of taking advantage of the upcoming price move, but if for whatever reason one wants / has to use silver or gold for this trade, we are providing the details anyway. In our view, silver has greater potential than gold does):

Silver futures downside profit-take exit price: unclear at this time - initially, it might be a good idea to exit, when gold moves to $1,703.

Gold futures downside profit-take exit price: $1,703

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 we describe the situation for the day that the alert is posted in the trading section. In other words, if 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 to decide whether keeping a position on a given day is in tune with your approach (some moves are too small for medium-term traders, and some might appear too big for day-traders).

Additionally, 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: UGL, GLL, AGQ, ZSL, 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" (GLL for instance), but not for the "main instrument" (gold in this case), we will view positions in both gold and GLL as still open and the stop-loss for GLL would have to be moved lower. On the other hand, if gold moves to a stop-loss level but GLL doesn't, then we will view both positions (in gold and GLL) 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 daily 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. Furthermore, 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.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief