Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Gold Stocks Break Below 2008 Low

Commodities / Gold and Silver Stocks 2015 Jul 01, 2015 - 05:58 PM GMT

By: P_Radomski_CFA

Commodities

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

Gold and silver declined yesterday, but the really profound action was seen in the precious metals mining stocks. Both key indices for this sector (the HUI and XAU) declined below their respective 2008 lows and managed to close below them. What’s next? Will gold and silver stocks bounce like they did in late 2014?


Before moving to the situation in the XAU and HUI, let’s take a look at the metals, starting with gold (charts courtesy of http://stockcharts.com).

In yesterday’s alert, we commented in the following way on gold’s Monday’s rally:

Gold moved higher yesterday and… That’s about it when it comes to listing yesterday’s bullish signs. The size of the move compared with its likely cause (closed banks in Greece and the introduction of capital controls), however, is actually bearish. Gold didn’t react in a meaningful way to a very bullish factor, and this is a strong sign that the gold market lacks buying power and that it will move lower sooner rather than later.

We didn’t have to wait for more weakness long – gold declined on Tuesday and it practically erased Monday’s gains. The volume on which gold declined was slightly higher than the one on which it had rallied on, which also supports the bearish outlook.

Please note that there were only a few cases in the previous months when gold closed below $1,170. When that happened, it moved to $1,140 quite quickly. Consequently, we will not be surprised to see gold trading in tune with this pattern once again in the coming days.

The situation in the silver market didn’t change – it’s been bearish and it still is. Yesterday’s decline is another step toward our target areas.

While we haven’t seen anything new in the silver market, we saw a major development in mining stocks. Both the XAU and HUI indices moved below their respective 2008 lows and while the breakdowns were not confirmed, they already made the picture more bearish.

In yesterday’s alert we wrote the following:

Gold stocks held up relatively well last week by not moving below their 2008 low. Not only was it natural, but it also seems that the miners’ “strength” was just temporary. Gold stocks declined despite rising gold once again yesterday and the implications are bearish. The support created by the 2008 low was not broken so the situation did not become extremely bearish for the short term, but still, it deteriorated.

Once this support is broken, the following decline could be sharp, so it seems justified to have at least a small speculative short position in this market at this time.

We have seen the mentioned breakdown (the HUI closing below 150), but before we say that they situation has become extremely bearish, we would prefer to see 2 additional daily closes below the 2008 low. In other words, we would like to see the breakdown confirmed.

We see exactly the same signal on the above chart. The XAU index closed below its 2008 low, but before this has very meaningful implications we will need to see the confirmation of the breakdown.

The fact that both indices are moving below their 2008 lows somewhat confirms this move, but in our opinion it’s not enough to make the breakdowns really confirmed.

The most important thing about the mentioned breakdowns is that it all happened when the precious metals sector should have moved higher based on the crisis in Greece. The precious metals market is not only not rallying despite positive news – mining stocks (which should be outperforming gold if we were to see a rally) even managed to decline and break below a critical support. The implications are clearly bearish.

Before summarizing, we would like to reply to the question that we received from one of our subscribers as it seems that our reply could be useful for you as well:

Hello, I am a long time subscriber to your Alerts. I have a question to  ask the editor about gold.  The Yuan is almost certain to become a reserve currency as early as  September. China is also waiting for Central approval to set up a gold  fix and finally it has been speculated that the Chinese government will  be announcing their gold reserve, in a way backing their currency with  gold. How would these affect the price of gold and the US$? Would we  have time to react? Thank you.

Thank you for your message. IF (!) China moves to the gold standard, the demand for the yuan will likely rise greatly, which would also mean increased demand for gold and thus its appreciation in non-yuan terms (also in terms of the USD).

IF - because we don't view this as likely. A significant appreciation of the yuan would severely hurt Chinese exports, which are very important for the Chinese economy. On a side note, if many gold investors view the above as likely and the price still disappoints (and miners continue to decline) then this is another sign that we will see much lower prices before seeing a major rally.

If that was to happen anyway... Would we have time to react?

In a way, we already reacting - we have part of our capital (the insurance part of the gold portfolio) in gold and silver, which makes sure that we won't miss a major rally in case of a sudden shock in the market.

As far as the rest of the capital is concerned, in short, yes, if by having time to react one means getting in the market well ahead of the vast majority of investors. We would probably have as much time to react as we had when gold broke below critical support levels in April 2013.

On April 12 we sent / posted the alert at 11:22 AM (gold was at about $1,500) in which we suggested closing the remaining half of the long-term investments in mining stocks (we exited the first half on April 4) and closing / hedging half of the long-term investments in gold and silver. We wrote about exiting the remaining half position in gold and silver in the April 15 (6:33 AM) alert. At that time gold was at about $1,410-$1,415.

Our aim was to exit the long-term positions completely after a meaningful breakdown below the 2012 lows. On Apr 12, we wanted to take action tens of dollars above $1,500, but the move was very volatile and even though we wanted to distribute the information earlier, we couldn't do it as the message had to be written, checked and sent (including quick proofreading and sending a test e-mail message to make sure that it went through). There are some limits to the form of providing signals in a newsletter that we aim to minimize, but we are not able to completely erase in this form of providing our services.

There might be a way for us to react much sooner and for you to "take action" almost instantly, but we can't publicly discuss the details (at least not yet).

Summing up, the situation in the precious metals market remains bearish and based on this week’s disappointing performance of precious metals and very weak performance of mining stocks (and the breakdown below the critical support), it further deteriorated. It’s not extremely bearish just yet as we haven’t seen a confirmed breakdown in the HUI and XAU indices below their 2008 lows, so we don’t think that doubling the size of our profitable short position is justified just yet. We’re very close to this moment, though. It will take only 2 additional daily closes below the 2008 lows for the breakdowns to be confirmed and for the situation to become extremely bearish. On the other hand, we could see a reversal here or other signs of strength that could make us take profits off the table and enter long positions. It doesn’t seem likely at this time, but we are not ruling out such a scenario.

To summarize:

Trading capital (our opinion): Short position (half) position in gold, silver and mining stocks is justified from the risk/reward perspective with the following stop-loss orders and initial (!) target prices:

Gold: initial target price: $1,115; stop-loss: $1,253, initial target price for the DGLD ETN: $87.00; stop loss for the DGLD ETN $63.78

Silver: initial target price: $15.10; stop-loss: $17.33, initial target price for the DSLV ETN: $67.81; stop loss for DSLV ETN $41.17

Mining stocks (price levels for the GDX ETN): initial target price: $16.63; stop-loss: $21.83, initial target price for the DUST ETN: $23.59; stop loss for the DUST ETN $10.37

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

GDXJ: initial target price: $21.17; stop-loss: $28.68
JDST: initial target price: $14.35; stop-loss: $5.65

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

© 2005-2019 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