Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Gold and Silver Price Decline Continues

Commodities / Gold and Silver 2015 Mar 11, 2015 - 05:46 AM GMT

By: P_Radomski_CFA

Commodities

Briefly: In our opinion speculative short positions (full) in gold, silver and mining stocks are justified from the risk/reward perspective. We are keeping the stop-loss levels at their current levels, which means that we are effectively keeping some gains locked in and at the same time we're allowing the profits to increase.

Gold moved a little higher yesterday only to disappoint in the following part of the session. Gold stocks plunged without looking back. The decline continues - will it end soon?


Not likely. Let's see a few reasons why we think this will be the case, starting with the short-term gold chart (charts courtesy of http://stockcharts.com).

Our yesterday's comments remain up-to-date:

Gold moved decisively lower last week and the final closing price of the week was only $2 higher than the lowest weekly close of the entire 2011-today decline. The previous lowest weekly close formed on Nov. 28 2014 at $1,165.80 and last Friday gold closed at $1,168.20. If gold closes just a little lower this Friday, we'll have a breakdown in terms of weekly closing prices with very bearish implications for the following weeks.

It could be the case that gold bottoms in the May - June time frame close to the $1,000 level.

On a short-term basis, we see that gold dropped sharply and significantly on Friday. The volume was high, so it doesn't seem that the decline was a fake move. Naturally, we could see some sideways trading here (gold is already moving a bit higher today, which is in tune with the above) as gold is likely to take a breather, but it doesn't seem likely that the decline is over yet.

Gold remains in a declining trend channel and its likely to continue declining without a bigger counter-trend upswing until reaching our next interim target level based on the previous major lows.

Gold moved a little lower yesterday but we would not be surprised to see a small rally in the coming days, which would not take gold above the declining trend channel and thus would not change the bearish outlook.

Since not much changed in the silver market (the medium-term outlook remains bearish), we will move right to the mining stock sector.

The HUI Index moved lower once again and is even closer to its 2008 and 2014 lows, which has bearish implications as it increases the odds of a confirmed breakdown below them. Our yesterday's comments remain up-to-date:

Gold stocks plunged sharply on Friday and are now well below their 2013 lows. It seems that they are back in the decline mode and their previous outperformance was indeed a very temporary phenomenon, as we expected. Once miners move below their 2008 and 2014 lows at about 150, we'll likely see a slide below 120, perhaps even (very temporarily) below 100. Our target area in this range remains up-to-date.

On the above chart we see that the gold stocks' previous outperformance didn't invalidate any trends - the decline remains in place and the outlook remains bearish.

Interestingly, given the current value of the HUI to gold ratio, the size of its decline on Friday and the fact that we are likely to see more declines in the coming weeks, it seems likely that the ratio will move below the previous 2000 and 2014 lows. In other words, gold stocks will quite likely be cheaper relative to gold than they were at any point during this entire bull market. It seems that we will have an extremely favorable buying opportunity in the following months - it's definitely the right time to be paying attention to what's going on in the precious metals market.

The XAU Index (that includes both gold stocks and silver stocks) is already extremely close to its 2008 and 2014 lows. Only a little more weakness is needed for this index to break below these lows and to move even lower. The next major support is very low - close to the 42 level - so there will be significant downside if the breakdown is confirmed. It will be critical to watch the situation develop in the upcoming weeks and react to breakdowns and their confirmations.

Overall, yesterday's session confirmed what we wrote previously.

Summing up, the precious metals sector moved much lower on Friday and it seems that it was another step in the current true direction of the market. We are likely to see a small corrective upswing here, but it doesn't seem that we will see a more visible correction until we see gold close to its 2014 low. Gold stocks are now once again underperforming gold, which serves as a confirmation that the correction is over and the decline will now continue.

Even though the size of the profits on the current short position may suggest that's it's worth taking them off the table (we opened the short position on Jan. 23 when gold was at about $1,300), it seems that the risk/reward ratio still favors keeping the position open as it doesn't seem that the decline is over. Even though gold has already fallen significantly, it's still likely to decline even more in the coming weeks and it is this outlook that makes us think that the short position remains justified at this time.

To summarize:

Trading capital (our opinion): Short positions (full) in gold, silver and mining stocks with the following stop-loss orders and initial (!) target prices:

Gold: initial target level: $1,135; stop-loss: $1,234, initial target level for the DGLD ETN: $85.48; stop loss for the DGLD ETN $65.45

Silver: initial target level: $15.10; stop-loss: $17.23, initial target level for the DSLV ETN: $74.05; stop loss for DSLV ETN $48.36

Mining stocks (price levels for the GDX ETN): initial target level: $17.13; stop-loss: $21.17, initial target level for the DUST ETN: $23.49; stop loss for the DUST ETN $11.35

In case one wants to bet on lower junior mining stocks' prices, here are the stop-loss details and initial target prices:

GDXJ: initial target level: $22.13; stop-loss: $27.38
JDST: initial target level: $14.58; stop-loss: $7.10

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.

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.

Thank you.

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Tools for Effective Gold & Silver Investments - SunshineProfits.com
Tools für Effektives Gold- und Silber-Investment - SunshineProfits.DE

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules