Miners Move Lower Without Gold’s Lead

tools spotlight

Briefly: In our opinion, full (150% of the regular full position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.

Yesterday’s session was far from volatile, but the one thing that made it worth describing, was the performance of mining stocks. The latter moved lower even though gold, silver and the USD Index moved back and forth.

What are the implications? Naturally, the implications of the underperformance of mining stocks are bearish. Let’s take a closer look for details (chart courtesy of http://stockcharts.com).

GDX - Market Vectors Gold Miners - Gold mining stocks

In yesterday’s alert, we commented on the above chart in the following way:

Mining stocks moved lower as well, moving back below their 50-day moving average. This level served as support quite a few times, so a day or two of sideways trading before the decline resumes would be quite natural here.

Please note how bad miners performed given the decline in the USD Index (lower part of the chart). The GDX ETF trades below the levels at which it traded in the second half of March, while the USD Index is about 7 index points lower. Silver is not the only part of the precious metals market that seems to be waiting for a rally in the USD or at least the end of the decline.

In the case of gold and silver, we indeed saw a day of sideways trading and in the case of mining stocks, even though they moved both up and down yesterday, they finally ended the session lower. Interestingly, miners closed the session before their 50-day moving average, which stopped the decline on Friday. Miners had no good reason to show weakness and still, they did, which has bearish implications for the following days and weeks.

Other than the above, nothing changed and we can summarize the outlook just as we summarized it yesterday:

Summing up, the situation developed in tune with our expectations regarding the movement in the USD Index and in the case of silver’s reaction. Still, it seems that it’s just the beginning of a much bigger move and that the most interesting and profitable part of the move is still ahead. It’s quite likely that the current situation is the beginning of the end of the long decline in the precious metals market that started several years ago.

On a different note, we have just posted our latest article from the Preparing for THE Bottom in Gold series. This time we discussed the “how” details regarding the making of the purchase when the time comes. You can access it using this link.

As always, we will keep you – our subscribers – informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Short positions (150% of the full position) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and initial target price levels / profit-take orders:

Gold: initial target price level: $1,063; stop-loss: $1,317; initial target price for the DGLD ETN: $81.88; stop-loss for the DGLD ETN $44.57
Silver: initial target price: $13.12; stop-loss: $19.22; initial target price for the DSLV ETN: $46.18; stop-loss for the DSLV ETN $17.93
Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $26.34; initial target price for the DUST ETF: $143.56; stop-loss for the DUST ETF $21.37

In case one wants to bet on junior mining stocks' prices (we do not suggest doing so – we think senior mining stocks are more predictable in the case of short-term trades – if one wants to do it anyway, we provide the details), here are the stop-loss details and initial target prices:

GDXJ ETF: initial target price: $14.13; stop-loss: $45.31
JDST ETF: initial target price: $417.04; stop-loss: $43.12

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

Important Details for New Subscribers

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.

=====

Latest Free Trading Alerts:

Volatility in gold has been decreasing recently. What does it mean for the gold market?

Volatility in Gold Declines

=====

Hand-picked precious-metals-related links:

Gold rises as dollar eases, focus on U.S. inflation data

Payment in gold bullion banned under new law to combat tax evasion

More than 21,000 mining jobs on the line in South Africa

=====

In other news:

World stocks shrug off slowing China trade to hit record high