Gold & Silver Trading Alert originally published on March 12, 2014 6:46 AM
Briefly: In our opinion short speculative positions (half) in silver and mining stocks are justified from the risk/reward perspective.
There were basically no changes in gold, silver and mining stock charts yesterday, except for gold moving slightly higher on news about increased tensions in Ukraine. Gold's reaction was once again weak.
As a reminder, here's what we wrote on March 3:
Given greater uncertainty and increased geo-political tensions we expect gold to outperform the rest of the precious metals sector in the near future. Technically, as you will see in the following part of today's alert, the situation deteriorated. Therefore, if the tensions ease, the move lower could be simply bigger - markets would give away the tension-based rally and then move lower just as if this weekend's events didn't happen. Consequently, at this time we are not suggesting moving fully back in for the entire precious metals sector. Normally, we would suggest going back in with half of each part of the sector (gold, silver, platinum and mining stocks), but at this time it seems that it would be better to move back fully in with gold and leave the rest out. In this case we are somewhat half-in but are also positioned to utilize gold's expected outperformance.
Since that time gold has been indeed outperforming mining stocks and, especially, silver.
In today's alert we decided to show you two charts that seem most critical as far as determining the outlook for the following weeks is concerned (charts courtesy of http://stockcharts.com):
Silver moved higher during the session but did so only initially. The rest of the session was largely about canceling the previous move and ultimately silver closed more or less where it had begun the session. Silver's slight move higher took place on low volume, which is not a bullish sign.
In today's alert we would like to draw your attention to one of the markets that is not the part of the precious metal sector, but that has lead the precious metals quite often in the previous years - copper.
Copper broke below the rising support line many months ago, but it wasn't until yesterday that it moved below the 2013 lows. The decline here seems to continue and the downside target is quite far away. Could copper decline so far? Of course - it declined even further in 2008.
As you can see on the above chart, the major price moves have taken place simultaneously in copper and the precious metals sector. Copper's breakdown is therefore a bearish factor for the precious metals sector, which might simply follow copper lower.
Technically speaking, there is strong support in the $2.1 - $2.2 range, and if copper declines significantly, that's where we expect the bottom to form. That's quite far from where copper is today, so if precious metals are to move similarly to copper, they too might decline quite profoundly.
It seems that the precious metals sector will move lower in the coming weeks, but just in case the situation in Ukraine deteriorates, we are keeping half of the long-term investment position in gold.
To summarize:
Trading capital (our opinion): Short position (half): silver and mining stocks.
Stop-loss details:
- Silver: $22.60
- GDX ETF: $28.9
Long-term capital (our opinion): Half position in gold, no positions in silver, platinum and mining stocks.
Insurance capital (our opinion): Full position
Thank you.
You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.
As a reminder, our latest report on mining stocks rebalancing is available free of charge and we encourage you to read it.
