Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

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