Market AlertFebruary 5, 2013, 11:48 AM
Initially, gold and silver moved slightly higher today and so did the USD Index. Right now, gold is lower than yesterday and silver & miners are more or less where they were. However, gold moved higher yesterday, whereas silver and miners didn't, so all in all, not much changed.
The USD Index is now once again at the declining resistance line that stopped previous rallies in Nov 2012 and two times in Jan 2013. The short-term outlook for the dollar is bearish and this also makes the medium-term outlook bearish, and both have a (and will have a much more) bullish impact on the precious metals market.
In other news, our SP Gold Stock Bottom Indicator has flashed a buy signal for gold, silver and mining stocks. This is a signal that we don't see very often - the last time we saw it was when mining stocks bottomed in mid-2012 - that's the second chart from the top -.
The implications of this signal are as follows:
- Go long gold for 4 weeks with a 6.6% stop-loss order
- Go long silver for 4 weeks with a 12% stop-loss order
- Go long gold for 4 weeks with a 17.5% stop-loss order
Since we've already had a long position based on the SP Indicators (reminder: half of the speculative trades are made according to our subjective technical analysis and half is made based on our in-house developed SP Indicators and you can), this signal supersedes the previous one. We remain long and will remain long for the following 4 weeks, but we suggest placing stop-loss orders for the part of your capital you invest according to the signals from SP Indicators:
- Gold: $1,564
- Silver: $27.95
- HUI: 332
Yes, these levels are considerably below the current prices, but the point is that this signal suggests that a large medium-term move is coming and that we should focus on it. We have chosen these stop-loss levels because they would have provided the highest gains over time -.
We realize that the precious metals market has been discouraging from both the investment (no bigger rally) and trading perspective (relatively small moves back and forth along with erratic behavior of mining stocks), but it is exactly this discouragement that will contribute to the size of the next big move, which we think is just around the corner. On a side note, low volatility in the past weeks lowered option premiums for instance for the GLD ETF. If you are an experienced trader and you have been considering various instruments for the long trade, using options (for instance March ones with a short-term trade in mind) seems to be a good idea right now.
If you haven't read the yesterday's Market Alert yet (there was something wrong with our email sending mechanism yesterday and we apologize if the notification message arrived late or didn't arrive at all), we encourage you toas it includes an interesting chart that compares gold to long-term bond yields.
Just as we indicated previously, a full speculative long position is suggested for gold and silver, and also for mining stocks.
Naturally, we suggest remaining in the precious metals market with your long-term investments. We sustain our belief that platinum will continue to outperform gold in the following months and it's not too late to take advantage of that.
As always, we'll keep you updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) at least until the end of February, 2013 and we will send additional Market Alerts whenever appropriate.
Przemyslaw Radomski, CFA