Briefly: In our opinion no speculative positions in gold, silver and mining stocks are justified from the risk/reward perspective.
Once again not much changed in the precious metals market yesterday, so we will focus on 2 things that actually changed and seem meaningful: mining stocks and the Euro Index (charts courtesy of http://stockcharts.com.)
While gold and silver didn’t do much yesterday, we can see that the price action in mining stocks is quite significant. What’s so significant is the size of the volume. It was not only lower than on the previous trading day, when miners declined, but it was also lower than what we had seen in the past few days when miners rallied. It looks like a sign of a top – a confirmation thereof, or a sign that one will be formed shortly.
The Euro Index moved above the declining resistance line, which was a very good reason for the precious metals market to rally – but it hasn’t. The breakout is not confirmed (and we don’t think that it will be confirmed), so the situation hasn’t become bullish. The lack of real reaction in the case of the precious metals sector is a bearish sign, though.
On the other hand, precious metals rallied significantly recently, so the fact that they are not rallying at this time doesn’t have to be bearish just yet – it could be the case that the metals and miners are simply taking a breather. That’s why we’re staying on the sidelines with the trading capital and waiting for additional confirmation before entering any position.
In other news, we were asked the following question:
With the US in recession in Q1 and maybe still, does your outlook on the US dollar and gold change as perhaps the dollar is due more falls? Has your view which is bearish on gold stocks and gold changed since yesterday and the GDP figures?
The GDP figures don’t change our outlook – the currency market has so much information to base its moves on that we don’t think that this specific number should be decisive. Markets are bombarded with news each day and this is especially the case with the currency markets. There are some pieces of information – like a surprising comment from the Fed – that can temporarily shake the markets, but we don’t think the current GDP figures fall into this category. Also let’s keep in mind that everything relating to currencies should be analyzed with relativity in mind. The USD Index is not necessarily about to move higher because things are going so well in the U.S. – it could be the case that things are not getting better for the U.S. and its trading partners, but the situation is getting worse more quickly in other countries and this could be enough to push the U.S. dollar higher.
We continue to expect more volatility to follow. We will be actively monitoring the markets and report to you accordingly.
Summing up, even though the precious metals sector moved much higher in the previous week, it seems that we are at or quite close to a local top in the precious metals sector. While the medium-term trend in the precious metals market is down, we were likely to see a corrective upswing – and we have. While in the past days it seemed that the corrective upswing was not over yet, we have some signs that it is over now. We have gold at a significant resistance line, we have short-term outperformance in silver, gold has made the headlines and its volatility is very low – and these are all bearish signs.
The only thing that seems exceptionally bullish at the first sight – the miners’ strength – is not really that bullish after one examines it more closely. We think that we will see a good risk/reward situation in the following days that will allow us to open a trading position in the precious metals sector, but at this time the short-term outlook is still too unclear.
To summarize:
Trading capital (our opinion): No positions
Long-term capital: No positions
Insurance capital: 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.
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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