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

Yesterday was another day during which the precious metals sector didn’t really decline (just a little) despite a move higher in the USD Index. Let’s check if the situation is bullish now (charts courtesy of http://stockcharts.com). 

Starting with gold, we saw a small move lower, which might appear slightly bullish given that the move materialized on low volume. This might have been a suggestion that the move lower was not the true direction in which the market was moving, but that was not really the case. The above is the case, in general, for an opposite situation – if a given market moves higher on very small volume, then it indicates that the buying power is drying up and that prices are about to move lower. The situation is not symmetrical, because the price doesn’t stay at the same level when there are no buyers and no sellers – it declines. In short, yesterday’s price-volume action is only slightly bearish.

What’s more interesting is that the first 2 days of this week are quite similar to the first 2 days of the last week. We saw a sizable decline after this 2-day action last week, so we can say that it’s a quite bearish pattern on its own. There was only 1 situation similar to the last 2 days, so the implications are not strongly bearish, but the closeness of the situation and the level of similarity make it bearish.

We can actually see a similar kind of 2-day pattern in the GDX ETF. Again, the implications are rather bearish. The mining stock sector is close to the March and April lows, and with each local high being lower than the previous one, it seems that we might finally see a breakdown this month.

The precious metals sector usually declines in the middle of May, so we have bearish implications also from this perspective.

On the other hand, the bullish fact is that the above-mentioned small-volume decline materialized when the USD Index moved higher and was already after a sizable rally. 

We previously commented on the USD Index in the following way:

The US dollar moved higher in the past few days and it’s about to take out the important declining resistance line that stopped the previous rally earlier this year. Once it moves above it, we are likely to see a strong upswing, which could translate into a big decline on the precious metals market. It seems quite likely in our view.

The USD Index moved higher and above the declining resistance line. It’s now more or less as much above it as it was during the previous attempt to move lower. Since the previous move failed, it seems to us that traders are waiting for some kind of confirmation that this breakout is a sustainable one. As such, it might not have had a bullish impact on the precious metals market just yet. It doesn’t mean, however, that we won’t see any in the coming days. There have been cases when precious metals’ reaction was simply delayed. This could still be the case, and we are not yet convinced that metals are showing true strength here.

The short-term USD Index chart reveals that there is one additional resistance lvel that needs to be taken out before the USD can rally much higher – the declining line based on the February and April highs. Once we have the USD Index above this line and the breakout is confirmed, traders should become convinced that the next move in the U.S. dollar is up, and that’s when we might see metals and miners finally respond to the USD Index’ strength (by declining).

Summing up, the outlook for gold, silver, and mining stocks remains bearish, but not extremely bearish, which means that we don’t increase the size of the short position just yet.

To summarize:

Trading capital (our opinion): Short positions (half) in: gold, silver, and mining stocks with the following stop-loss orders:

- Gold: $1,326

- Silver: $20.30

- GDX ETF: $25.20

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

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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.

In another day of quiet trading, gold moved within a $9 range and printed a "doji" candlestick on the daily chart.  The triangle pattern is moving towards its apex and we anticipate a breakout shortly.

This morning, gold is trading higher and is back above 1300 and both the 80 and 200 hour MAs with solid buying entering the market.

It is encouraging to see gold hold support in the face of equities hitting new all time highs and the dollar holding gains above 80 - the S&P seems reluctant to move sharply higher after breaking major resistance at 1885-1895 and the dollar appears to be stalling after a strong rebound off 79.

Oil is trading above $102 a barrel and silver is trading near to $20, supporting gold.  There is little in the way of data today from the US, with monthly PPI the only release slated for this afternoon.

Support can be found at 1296-1298, 1291, 1285-1287, 1278, 1273, 1267, 1250-1255, 1237-1240, 1220-1225, 1210, 1200 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term, though this now looks unlikely unless we break below 1250.

Resistance can be found at 1304-1307, 1314-1315, 1319-1322, 1330-1332, 1340-1342, 1352-1354, 1392-1395, 1400, 1420 and 1435.  The impulsive breakout above the first down trend line on the weekly chart suggests an end to the intermediate term down trend, however the 65 week MA must be broken before a significant rally can develop.

Gold found buying support yesterday after gapping down at the Sunday night open, however the rally ran out of steam at 1304 and the price has retreated back to the 100 DMA at 1290 this morning.

The price remains bound in a narrow range between the 50 DMA at the top, currently at 1313, and the 100 DMA at the bottom, currently at 1290.

The Elliot Wave picture is still unclear, with the narrowing range suggesting a "triangle" pattern is forming - this is rather unusual in the position it is forming.

The S&P hit all time highs yesterday, breaking through stubborn resistance at 1885-1895 which should now see a continuation of the rally.  The dollar is trading around 80 after rallying sharply last week from key support at 79.

Support can be found at 1285-1287, 1277, 1273, 1267, 1250-1255,  1237-1240, 1220-1225, 1210, 1200 and 1180.  A break of 1180 would have  serious bearish implications for gold and suggest a decline to 1000-1050 in the short term, though this now looks unlikely unless we break below 1250.

Resistance can be found at 1296-1298, 1304-1307, 1314-1315, 1319-1322, 1330-1332, 1340-1342, 1352-1354, 1392-1395, 1400,  1420 and 1435.  The impulsive breakout above the first down trend line on the weekly chart suggests an end to the intermediate term down trend,  however the 65 week MA must be broken before a significant rally can develop.

Today's video for subscribers looks at the recent trading in more detail and our strategy for our next trade.

After another quiet day of trading on Friday within a narrow $10 range, gold opened down at the Asian open today before bouncing back sharply and is now trading at 1296, above the 80 and 200 hour MAs again and inside the uptrend channel.

The dollar has rebounded powerfully after testing critical support at 79 last week and is now trading just below 80, whilst the S&P remains near all time highs, albeit stuck below solid resistance at 1885-1895.

Oil remains above $100 a barrel amid continuing tensions in Ukraine and Russia though in general, markets are calm and volatility is low.  There is little in the way of news today that could affect markets and we could see another quiet day of trading ahead.

Support can be found at 1285-1287, 1277, 1273, 1267, 1250-1255, 1237-1240, 1220-1225, 1210, 1200 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term, though this now looks unlikely unless we break below 1250.

Resistance can be found at 1296-1298, 1304-1307, 1314-1315, 1319-1322, 1330-1332, 1340-1342, 1352-1354, 1392-1395, 1400, 1420 and 1435.  The impulsive breakout above the first down trend line on the weekly chart suggests an end to the intermediate term down trend, however the 65 week MA must be broken before a significant rally can develop.

Today's video for subscribers looks at the recent trading in more detail and our strategy for short term trading.

Gold moved ina a very narrow $10 range yesterday, with the high coming in at 1295 and the low at 1285.  The low coincided with the 100 DMA and the lower boundary of the uptrend channel, which provided solid support.

However, gold is consolidating near to the previous day's lows, which suggests more downside is possible.  The bulls need to push the price back above the 80 and 200 hour MAs, currently at 1298 and 1296 respectively, ideally before the weekend, to ensure the uptrend remains well in place.

The dollar has rallied sharply after briefly dipping below 79 yesterday, equities have stalled at stiff resistance near 1885-1895 and oil is trading around $101 a barrel.  We would like to see the dollar retest critical support at 79 to indicate the strength of the market - a break of this level would likely see a sharp sell off as stop losses just below 79 were taken out, however a "double bottom" at this key area would bode well for a strong dollar rally.

Support can be found at 1285-1287, 1277-1280, 1273, 1267, 1250-1255, 1237-1240, 1220-1225, 1210, 1200 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term, though this now looks unlikely unless we break below 1250.

Resistance can be found at 1296-1298, 1304-1307, 1314-1315, 1319-1322, 1330-1332, 1340-1342, 1352-1354, 1392-1395, 1400, 1420 and 1435.  The impulsive breakout above the first down trend line on the weekly chart suggests an end to the intermediate term down trend, however the 65 week MA must be broken before a significant rally can develop.

Today's video for subscribers looks at the recent trading in more detail and our strategy for our next trade.

After forming a "triple top" at resistance at 1314, gold tumbled $30 yesterday, making a low at the 100 DMA at 1286, also near to the bottom boundary of the up trend channel.

This morning, gold has stabilised around 1290, with the weak dollar and equities and rallying oil helping to support the price.

Gold is now trading back below the 80 and 200 hour MAs and needs to regain these key levels to sustain the uptend, which remains intact and in play.

There is little in the way of data today to move the maket, however the dollar is getting very close to the key October 2013 low at 79, a break of which could see a sustained sell off which would boost gold substantially.

Support can be found at 1288-1291, 1284, 1277-1280, 1267, 1250-1255, 1237-1240, 1220-1225, 1210, 1200 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term, though this now looks unlikely unless we break below 1250.

Resistance can be found at 1296, 1304-1307, 1314-1315, 1319-1322, 1330-1332, 1340-1342, 1352-1354, 1392-1395, 1400, 1420 and 1435.  The impulsive breakout above the first down trend line on the weekly chart suggests an end to the intermediate term down trend, however the 65 week MA must be broken before a significant rally can develop.

Today's video for subscribers looks at the recent trading in more detail and our strategy for our next trade.

Yesterday saw gold drift lower in quiet trading, consolidating the gains of the previous two sessions.  The trading range was narrow and entirely within the range of the previous day - an "inside day" that indicates consolidation.

This price action will have been concerning for the bulls - with the dollar and equities sharply lower and oil higher, gold should have found support and moved higher, building on the breakout from the down trend channel on Friday/Monday.

This morning, gold is firmer at 1313 and looking likely to move back to the top of the uptrend channel at 1319, with the 80 and 200 hour MAs providing support at 1306 and 1299 respectively.  Equities and the dollar are flat, however oil is up again and is now trading back above $100 a barrel.

Support can be found at 1304-1307, 1298-1301, 1288-1291, 1284, 1277-1280, 1267, 1250-1255, 1237-1240, 1220-1225, 1210, 1200 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term, though this now looks unlikely unless we break below 1250.

Resistance can be found at 1314-1315, 1319-1322, 1330-1332, 1340-1342, 1352-1354, 1392-1395, 1400, 1420 and 1435.  The impulsive breakout above the first down trend line on the weekly chart suggests an end to the intermediate term down trend, however the 65 week MA must be broken before a significant rally can develop.

Today's video for subscribers looks at the recent trading in more detail and our short term trading strategy.

Gold broke out of the down trend channel on Friday and yesterday saw follow through buying, though there was a Bank Holiday in the UK which meant no trading in London.

This morning gold is consolidating the gains around 1310 and looks set to move higher, with a new up trend channel forming, the upper boundary of which comes in at 1317.  This level also coincies with the 100 DMA which will provide further resistance.

The 200 and 80 hour MAs now become support and the 20 DMA provides further support at 1302.

The dollar has fallen sharply this morning, providing further impetus to gold, however equities remain near all time highs - we maintain our long term view that gold will not enjoy a major rally until we see a significant and sustained correction in equity markets.

Support can be found at 1304-1307, 1298-1301, 1288-1291, 1284, 1277-1280, 1267, 1250-1255, 1237-1240, 1220-1225, 1210, 1200 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term, though this now looks unlikely unless we break below 1250.

Resistance can be found at 1314-1315, 1320-1322, 1330-1332, 1340-1342, 1352-1354, 1392-1395, 1400, 1420 and 1435.  The impulsive breakout above the first down trend line on the weekly chart suggests an end to the intermediate term down trend, however the 65 week MA must be broken before a significant rally can develop.

Today's video for subscribers looks at the recent breakout in more detail and our short term trading strategy.

Gold fell further yesterday, dropping as low as 1277 in quiet trading before rebounding slightly into the close.  The 100 DMA at 1284 is providing support with the 80 and 200 hour MAs now providing near term resistance at 1288 and 1291 respectively.

The theme for the week has been bearish trading within a narrow range as the gold price looks set to fall back towards last week's lows at 1268.

Equities are also virtually flat, though stocks remain at or near all time highs and look likely to advance further next week.  This will keep the pressure on gold aqs will the tumbling oil price - the weak dollar does not appear to be helping gold at all, which is worrying for the bulls.

May is often a strong month for gold before we enter the summer doldrums from June to August, where gold traditionally drifts sideways to lower in quiet trading - much like we have seen this week in fact.

Support can be found at 1284, 1277-1280, 1267, 1250-1255, 1237-1240, 1220-1225, 1210, 1200 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term, though this now looks unlikely unless we break below 1250.

Resistance can be found at 1288-1291, 1298-1301, 1304-1306, 1314-1315, 1320-1322, 1330-1332, 1340-1342, 1352-1354, 1392-1395 and 1400.  The impulsive breakout above the first down trend line on the weekly chart suggests an end to the intermediate term down trend, however the 65 week MA must be broken before a significant rally can develop.

Today's video for subscribers looks at the recent trading in more detail and our short term thoughts for gold.

Yesterday saw another indecisive day of trading in gold with a downside bias, with the price moving in a narrow range between 1285 and 1298.

The FOMC announcement of further QE tapering barely made a whimper in the gold market, it appears that QE is now definitely "old news" and the inveitable tapering has been fully priced in.

Dollar weakness has not resulted in a gold rally which is concerning for the bulls - the gold price is now trading well below the 80 and 200 hour MAs which will now serve as resistance.  It appears likely that gold is heading back to retest 1268, a break of this level would be very bearish indeed.

The oil price has tumbled recently alongside gold as the Ukraine situation recedes and inflation remains very low, whilst equities continue to move higher, albeit at a slower pace.

Support can be found at 1277-1280, 1267, 1250-1255, 1237-1240, 1220-1225, 1210, 1200 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term, though this now looks unlikely unless we break below 1250.

Resistance can be found at 1298-1301, 1304-1306, 1314-1315, 1320-1322, 1330-1332, 1340-1342, 1352-1354, 1392-1395 and 1400.  The impulsive breakout above the first down trend line on the weekly chart suggests an end to the intermediate term down trend, however the 65 week MA must be broken before a significant rally can develop.

Today's video for subscribers looks at the recent trading in more detail and our strategy for short term trading in this market.