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.

Our summary of the current situation in the precious metals is not going to differ much from what we wrote yesterday, and the reason is simple. The decline in gold, silver, and miners is developing just as we've been expecting it to. Most importantly, gold has just confirmed its breakdown and everything that we reported on gold's outlook and price targets just got a huge confirmation.

Let's take a look at what gold, silver, and mining stocks did in the last couple of days.

The Recent Days in PMs

Gold broke below the lowest closing price of September and it just verified this breakdown by closing below it for three consecutive trading days, and that includes the weekly close too. That's a clear way for gold to say that a relatively broad top has been formed and that lower prices are going to follow.

Silver broke not only below its September low, but also below its rising red support line and the 50% Fibonacci retracement level. Technically, silver's breakdown was even more important than the one in gold. The fact that the white metal managed to close the week below the combination of three support levels is bearish, but it will become much more so only after it's verified.

• So, isn't it best to wait for the breakdown in silver to be confirmed, before aiming to profit on the decline?

That's one way to do it, and if anyone wants to take this route - sure, it's their capital. We think that having a position open right now is better from the risk to reward point of view because of the confirmed breakdown in gold, and because of multiple signs that we have covered in our previous analyses, and that we can't discuss on each day - there's simply not enough space and time to again go through all the bearish factors that remain in place right now.

It is usually the case that three consecutive closes below a certain level are necessary for the market to verify the breakdown, but given how strongly correlated gold and silver are, the odds are that a slide in gold will trigger a powerful slide in silver as well. And gold's plunge could start any day, hour, or minute.

• Ok, but what about the miners' strength? They just moved higher yesterday, even though gold didn't.

That's true, but it's also true that they did the very same thing just several days ago, during the previous pause. On November 5^th and 6^th, miners moved higher on an intraday basis even though gold rallied only once in intraday terms. Moreover, November 5^th - the first of the small, two-day, corrective upswing - was the day when the HUI opened lower but then moved up during the day. That's exactly what happened on Friday - the first day of the current, two-day, corrective upswing.

Given the above similarity and the very bearish follow-up that we saw on November 7^th (big plunge across the precious metals' board), it's hard to view miners' performance as bullish. Besides, if the miners are really showing strength here and the decline in gold and silver continues today, then the former will easily repeat their supposedly bullish signal, indicating a local bottom. At this time, such a scenario seems doubtful.

The gold market has been declining just as we expected it to and it's likely to decline some more before we see a bigger turnaround. Knowing when to exit a short position and when to enter a long one is the essential part of making money on this move. They say that the universe does not reward one for what they know, but for what they do with it. The clear price targets and profit-take details for gold, silver, and miners included in the full version of today's analysis - our Gold & Silver Trading Alert - are the actionable part that savvy traders really should take into account right now. We invite you to join us at extremely preferential terms - the first 3 weeks of your new subscription are now discounted to mere $9! Subscribe today, while this offer is still available.

GDX Confirms

GDX ETF's volume confirms the above. This proxy for the mining stocks moved mere $0.01 higher, which means that it was basically flat. The volume was very low, which points to miners simply taking a breather, with the trend remaining unchanged. And the declining trend is likely to resume shortly.

As far as target prices for gold are concerned, our previous comments remain up-to-date:

Gold's Target Prices

If gold slides very sharply, then it may be the case that the move is unsustainable even on a short-term basis.

That's right - despite myriads of bearish factors that remain in place, gold could still bounce if the price gets too low too fast. Yesterday, gold showed that it can move substantially lower with little help from the USDX. So, what's likely to happen if gold actually gets a sizable push from the USD? It would likely plunge.

The sharper the decline, the less sustainable it usually becomes, especially in the early part of the bigger downswing, and that's where gold is right now. So, while the $1,360 - $1,390 area is still likely to trigger a more visible reversal, if gold declines very sharply right away (next week or even today), then we might get a quick rebound sooner.

At what level could gold reverse in this case? At about $1,410 - $1,420. This is where three important support levels coincide:

• the declining support line
• the 38.2% Fibonacci retracement level
• the early August low that started the sharp decline to the final top.

If gold moves there and at the same time silver and mining stocks move to important support levels of their own, and mining stocks show strength, we might decide to temporarily exit the short positions and perhaps enter long positions.

We are not adjusting the binding profit-take levels for this trade, because whether or not we choose to change anything with gold at $1,420 or so depends also on how silver, miners, and USDX perform at that time (also relative to each other). We are keeping our eyes open for the quick-profit opportunity and we'll keep you informed. The above is simply an early heads-up that something like that might happen in the near future.

Let's also take a look at what the USD Index just did.

USD Index Yesterday

It corrected after quite a sharp short-term upswing. That's important to us - precious metals investors and traders - because it shows that gold continues to be weak relative to one of its key price determinants (the other key gold driver comes from the fundamental side of the market - we mean the real interest rates). This means that the decline in gold is likely to continue. Gold's resilience to USD's strength (if gold refused to decline) would be something bullish. But what we are seeing is exactly the opposite. Theoretically, gold should have moved higher yesterday, which would be quite natural, as it's after a sizable short-term downswing - yet it didn't manage to do that.

Naturally, the other key bearish factors for the medium term remain intact as well.

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, the outlook for the precious metals sector remains very bearish for the following weeks and months.

The profits from the short position in gold, silver and mining stocks are likely to be legendary, but the difficult part is not to miss the decline, which is why we're rather reluctant to exit the short position very often. Still, since no market moves up and down in a straight line, it makes sense to time the moves that appear to have favorable risk to reward ratios. Based on the information that we have available right now, it seems that the next opportunity to take profits from the short positions and perhaps enter long ones, will take place next month, quite likely close to $1,400 in gold. However, if we see a good chance for a quick and sizable rebound even before that (perhaps close to $1,415), we might adjust our trading positions accordingly.

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 are justified from the risk/reward perspective with the following stop-loss orders and binding exit profit-take price levels:

• Gold: 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: 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: $41.22
• JDST ETF: profit-take exit price: $35.88 stop-loss: $12.46

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