Gold plunged today and since it’s already about $70 lower than when we opened short positions (based on the Jan 22 closing prices), you might be wondering if it’s a good idea to close the short position and take profits off the table.

We agree that it is tempting, but - as always - it’s the outlook that determines whether a certain position is justified or not and not the status of the current position. The fact that at this time we have significant profits on the short position doesn’t mean that they can’t get any bigger - and at this time this seems to be the situation.

The trading week will be over in just a few hours and it is highly unlikely that we’ll see significant strength in the precious metals sector. This means that the major sell signals from the Stochastic indicator in gold and the HUI Index based on the weekly prices will be confirmed. This is something that will make the outlook more bearish - not less. Some traders will likely open short positions now - based on the above-mentioned signals - and help to push the prices even lower. We will update our initial target levels in Monday’s alert.

You might also be wondering what are our thoughts on the long-term investment capital. We think that it’s best to have the weekly closing prices and weekly volume levels before we can really tell if anything changed. Consequently, we think that it will be best to analyze the situation over the weekend and provide you with the outcome of the analysis in Monday’s alert. For now, we don’t think that any adjustments need to be made.

Summing up, it seems that from the risk/reward perspective it’s best to let the profits grow even more and keep the short positions intact.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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