Briefly: In our opinion speculative short positions (half) are justified from the risk/reward perspective in gold, silver, and mining stocks.

The precious metals sector declined yesterday, just as it was likely to. The question is if anything changed based on this session – has the outlook become more bullish or bearish? Let’s take a look (charts courtesy of http://stockcharts.com).

Starting off with gold, we’re seeing a rather normal decline. The move wasn’t accompanied by huge volume, but it did not happen on low volume either. Just a few days ago gold moved to its declining resistance line, failed to move above it and now the downtrend simply continues.

There was no breakdown below the previous lows so the outlook didn’t deteriorate based on the above chart.

The situation in the silver market remains bearish, mainly due to the white metal’s ongoing underperformance relative to the rest of the precious metals sector.

However, silver hasn’t really broken below the rising support line based on the 2013 lows, so the situation hasn’t deteriorated that much. Yes, we saw an intra-day move below this line yesterday, but silver moved back up and ended the session at the support line. There has been no real breakdown just yet.

The GDX ETF (proxy for mining stocks) hasn’t invalidated its previous breakout above the declining support/resistance line just yet. Therefore, the situation is not really more bearish.

We saw a barely visible sell signal from the Stochastic indicator, which makes the picture slightly more bearish – yes, only slightly.

The most bearish piece of news comes from the analysis of the currency market.

Yesterday, we wrote the following:

Moving back to the currency sector, while the Euro Index moved to its resistance line, the USD Index moved to its support line. As we have recently emphasized, the cyclical turning point is just a few days away. This means that we are quite likely to see a reversal shortly, and since the support line was just reached, we might just have seen the bottom.

With bearish implications from the USD and Euro Indices themselves and bearish implications from the gold-USD and gold-euro links it seems that the outlook for the precious metals sector is bearish.

We saw more of the same during yesterday’s session. The precious metals sector “managed” to decline despite the lack of a rally in the USD Index. Our interpretation is that the precious metals market “wants” to move lower. The USD Index is quite likely to reverse its direction and rally based on the cyclical turning point, and this is likely to make metals and miners decline even faster.

We will quite likely mention doubling the speculative short positions once the situation deteriorates further (for instance if/when miners move back below their declining support/resistance line).

To summarize:

Trading capital (our opinion): Short positions (half) in: gold, silver, and mining stocks with the following stop-loss orders:

• Gold: $1,316
• Silver: $19.70
• GDX ETF: $24.80

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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