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Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do…

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Gold and Silver Trading Alert: From Bearish to More Bearish

Gold & Silver Trading Alert originally published on March 27th, 2014 9:30 AM


 

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

The decline in the precious metals sector continues, as indicated in the previous alerts. Gold, silver and mining stocks have declined once again and appear to be headed lower also today. Did yesterday's price action change anything? Let's take a look (charts courtesy of http://stockcharts.com). Today we will start with silver and mining stocks.

$HUI Gold Bugs Index - NYSE Arca INDx
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The reason that we're starting with mining stocks is that definitely nothing changed in this picture. The situation was particularly bearish and still is. We saw another volatile drop yesterday. Actually, it might have been a little too volatile and a pause here would not surprise us.

$SILVER - Silver - Spot Price (EOD) CME
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Silver is now well below the $20 level and appears to be ready to decline some more. After all, the breakdown below the rising long-term support lines has already been confirmed.

$GOLD Gold - Spot Price (EOD) CME
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We previously commented on the gold market in the following way:

Gold has finally moved below the rising support line. The implications are bearish but not strongly bearish just yet, as the breakdown is not confirmed. If we see two more closes below this line or a close below $1,300 level, we will view the breakdown as confirmed.

At that time, we might open a speculative short position in gold and/or exit the long-term investment (currently keeping half of the regular position is justified in our opinion).

Gold is currently already below the levels we saw before the Crimea crisis even though the situation is not more stable than it was back then. This is a kind of underperformance of the yellow metal and a bearish sign. If Russian troops advance further into Ukraine, the price of gold might jump again. If that doesn't happen, the decline is likely to continue.

Gold closed below the rising support/resistance line for the third consecutive trading day and the breakdown is now confirmed. Gold showed weakness and vulnerability by not rallying strongly when Russian troops moved into Crimea. The above was confirmed when gold declined more than in had rallied as tensions regarding Ukraine escalated. It seems that another significant move lower is coming (yes, we still think that gold will more than surpass its 2011 high in the coming years, but not without declining again first).

$USD US Dollar Index - Cash Settle (EOD) ICE

The situation in the USD Index supports the bearish case. The U.S. currency is after a short-term breakout, after a false breakdown below the rising medium-term support line and after a small consolidation. The USD Index simply looks ready to rally further. Since there has been negative correlation between precious metals and the USD Index recently, and now gold is even declining without the dollar's help, we have a very bearish combination.

The precious metals sector appears to be likely to decline even without the U.S. dollar's "help", but it seems that it will receive this "help" anyway.

Consequently, in our opinion the remaining half of the long-term investments in gold can be temporarily closed. Moreover, in our opinion a speculative short position in gold is also justified from the risk/reward perspective. We are also moving stop-loss orders lower as silver and miners are much lower than when we first outlined these positions.

To summarize:

Trading capital (our opinion): Short positions: gold (half), silver (half) and (full) mining stocks.

Stop-loss details:

  • Gold: $1,342
  • Silver: $20.85
  • GDX ETF: $25.6

Long-term capital (our opinion): No positions
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 always, we'll keep our subscribers updated should our views on the market change. We will continue to send them our Gold & Silver Trading Alerts on each trading day and we will send additional ones whenever appropriate. If you'd like to receive them, please subscribe today.

 

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