Briefly: In our opinion no speculative positions in gold, silver and mining stocks are now justified from the risk/reward perspective.
Gold started the week with a pause after Friday’s meaningful intra-day volatility. Can a daily pause change something? It turns out that a day can make a slight difference. Let’s start with the chart featuring it (charts courtesy of http://stockcharts.com.)
The difference is that we are one additional day after the cyclical turning point in the USD Index and, at the same time, the index is one additional day within the horizontal consolidation pattern.
Consequently, what we wrote yesterday is not only up-to-date, but actually, the implications are a bit stronger:
The situation in the USD Index is still a bullish factor for the precious metals sector. The U.S. dollar is after a sizable rally and right after the turning point, which is likely to cause at least a small decline.
If the USD Index doesn’t decline in the next several days, it will prove the dollar’s strength. We saw a sizable rally in July and if the US dollar is able to hold these gains and only correct in a mild, horizontal way, then we will likely see another big upswing shortly. For now, the index is still close to the cyclical turning point, and thus prone to a corrective downswing.
Please note that with each passing day, the USD Index is getting further from the turning point, and the odds for a decline diminish. Another reason is that we are already seeing a consolidation pattern in the index – we are no longer “extremely likely” to see at least a pause, as we are already seeing it. The RSI indicator is once again below the 70 level, so the situation is no longer overbought on a short-term basis.
Generally, that’s the only thing that we can comment on today, as not much happened in other markets and with ratios that have a significant impact on the precious metals market.
Gold declined on low volume, which is a small indication that the rally is not completely over. As mentioned above – our previous comments remain up-to-date:
On a short-term basis, Friday’s price action was more visible. Our previous target area was reached, and the local top might already be in. That’s right – “might”. As you will see in the following part of this alert, the situation in the currency markets still suggests (with each day less and less, though) that another short-term rally will be seen soon. That’s why we enlarged the target area – if the USD Index corrects, then we could see some more strength in gold and the rest of the sector. At this time we don’t even rule out a move slightly above the July high.
Taking all the above into account, we can summarize the current outlook in the same way as we did yesterday.
Summing up, it seems that even though the next big move in the precious metals sector is still likely to be to the downside (we have not yet seen actions that are usually seen at important bottoms, like huge underperformance of silver [what we saw this week was not huge enough], and gold is not actively hated in the mass media), the odds for a corrective rally are relatively high.
The USD Index is [still, but less with each passing day] likely to decline at least a little, which is likely to cause a rally in the precious metals sector. However, let’s not forget that the USD Index is after long-, medium-, and short-term breakouts, so this corrective downswing could be small and temporary – the next big move is likely to be to the upside. The opposite seems likely for the precious metals sector.
We plan to re-enter short positions when we see either a small rally an some kind of confirmation that the next local top is in. At this time, we prefer to say out of the market. The situation simply seems too unclear and risky to open a speculative position.
To summarize:
Trading capital (our opinion): No positions
Long-term capital (our opinion): No positions
Insurance capital (our opinion): Full position
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.
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 always, we'll keep you - our subscribers - updated should our views on the market change. We will continue to send out Gold & Silver Trading Alerts on each trading day and we will send additional Alerts whenever appropriate.
The trading position presented above is the netted version of positions based on subjective signals (opinion) from your Editor, and the automated tools (SP Indicators and the upcoming self-similarity-based tool).
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
Founder, Editor-in-chief
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
