Briefly: In our opinion speculative short positions (half) in gold, silver, and mining stocks are justified from the risk/reward perspective.
We would like to write something new about the gold market, but it provides us with the same bearish indications over and over again. Before we discuss these in detail, let’s take a look at the situation in the USD Index (charts courtesy of http://stockcharts.com.)
Yesterday’s comments remain up-to-date:
The medium-term chart suggests that the move higher has just begun as we saw a breakout above the important resistance line, and we saw a weekly close above it. Another move higher will further confirm the breakout and likely convince more traders that the currency is really about to rally substantially in the coming weeks.
This means that the biggest (bearish) impact on the precious metals sector is still ahead of us.
The above-mentioned breakout hasn’t been invalidated so far – the USD Index remains above both support lines: the declining grey one and the rising black one.
We previously emphasized that each high that we’d see in in the preceding 2 months was lower than the previous one. That’s a bearish factor. If you didn’t watch the market yesterday and haven’t glanced at the above chart – take a guess – what have we just seen? That’s right – another lower local top.
In fact, yesterday’s early-session rally was even less bullish than the previous one, because gold didn’t manage to close higher (technically, the GLD ETF moved $0.08 higher, which is next to nothing) this time – there was only an intra-day rally.
Mining stocks didn’t do much either. After the initial – small – move higher, they gave up the gains. Let’s keep in mind what we wrote previously: while gold is above its March and April lows, the GDX ETF has just closed slightly below them. Mining stocks are showing weakness and suggest that another move will be to the downside.
The precious metals sector usually declines in the middle of May, so we have bearish implications also from this perspective.
Summing up, the outlook for gold, silver, and mining stocks remains bearish, but not extremely bearish, which means that we don’t increase the size of the short position just yet. Precious metals are not responding strongly (we saw some reaction in the final part of last week, though) to the dollar’s rallies so far, but it seems that investors and traders are simply waiting for a confirmation of the breakout in the USD Index (there have been cases when the metals’ reaction was delayed in the past). Plus, silver’s strong performance and the lack thereof in the case of mining stocks, plus lower highs in gold and mining stocks, are a bearish combination.
To summarize:
Trading capital (our opinion): Short positions (half) in: gold, silver, and mining stocks with the following stop-loss orders:
- Gold: $1,326
- Silver: $20.30
- GDX ETF: $25.20
Long-term capital: No positions.
Insurance capital: Full position.
Please note that a full speculative position doesn’t mean using all of the speculative capital for this trade. You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.
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
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