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Przemyslaw Radomski

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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: Gold Slides Again as Expected

Gold Trading Alert originally published on September 10th, 2015 7:49 AM:

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

Gold, silver and mining stocks declined once again yesterday, but this was not surprising to those who followed our analysis. We moved to the short side many days ago and the profits have just increased. Will they increase even more?

Quite likely. The gold chart features a good reason for it (charts courtesy of http://stockcharts.com).

$GOLD Gold - Spot Price (EOD) CME
Larger Image

To a large extent, our previous comments on the above chart remain up-to-date:

We just saw another daily close below the neck line of the bearish head-and-shoulders pattern, which makes the breakdown more confirmed. Based on our experience, it usually takes 3 trading days for a given move to be completely confirmed, so the situation will become even more bearish if gold closes below the neck line also today (which seems quite likely).

Gold indeed closed below the neck level of the head-and-shoulders pattern and that's a very bearish sign as it means that the breakdown was confirmed. A move below $1,080 has just become much more likely and so has the chance of increasing our profits on the current short position.

$GOLD:UDN Gold(EOD)/PS DB US$ Bearish CME/NYSE

From the non-USD perspective, we see that gold is at its previous lows. It's not at the 2013 / 2014 lows but its certainly at the 2015 ones. The medium-term trend remains down and it seems very likely that gold will move even lower in the coming weeks.

$SILVER Silver - Spot Price (EOD) CME
Larger Image

We recently commented on silver's performance from the short-term perspective and in today's alert we would like to focus on the long-term one. Silver's recent move higher is almost invisible on the above chart and that tells us something about this move's importance. Silver is below its 2010 low and it's already after a rebound that followed the first attempt to move below it.

Consequently, it's much more likely that silver will manage to move below the 2010 low at this attempt. If it doesn't, it's not likely to rally significantly anyway, as the declining red dashed resistance line is relatively close. The outlook remains bearish.

$HUI Gold Bugs Index - NYSE Arca INDX
Larger Image

We'll change the perspective also in the case of mining stocks. The decline in gold stocks proceeds in tune with what we saw in 2008 and we have just seen an important signal that miners will move considerably lower in the coming weeks. The Stochastic indicator based on the weekly closing prices flashed a sell signal and these signals are not to be ignored - they've been quite reliable in the previous several years.

Summing up, the precious metals sector declined as expected, but it seems that the real decline is only beginning and that our profits from the short position will be much higher before the decline is over. We just saw 2 additional reasons for metals and miners to move lower: the verification of the breakdown in gold and a sell signal from the Stochastic indicator, and both of them have quite strong bearish implications. Even if we see a small corrective rally shortly, it will likely not change the main medium-term trend, which remains down.

To summarize:

Trading capital (our opinion): Short position (full) position in gold, silver and mining stocks is justified from the risk/reward perspective. Specific stop-loss orders and initial target prices are available to our subscribers.

Long-term capital (our opinion): No positions

Insurance capital (our opinion): Full position

You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.

Thank you.

 

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