Briefly: In our opinion no speculative positions are currently justified from the risk/reward perspective.
Gold moved substantially higher on Friday and the volume was huge. The session was both significant and bullish, but the question remains if such show of strength can be a start of the next big move. As we promised in Friday’s second alert, we analyzed the situation thoroughly over the weekend and are reporting to you today.
Let’s jump right into charts (charts courtesy of http://stockcharts.com).
First of all, let’s take a look at something that didn’t change – the situation in the USD Index.
If the USD Index breaks down from the triangle patter, it’s not likely to fall much further – there are short-term support levels at the Oct. high and the rising black support line. We don’t expect the USD Index to move visibly below the 86.4 - 87 area. We would expect the rally to resume after this area is reached.
On the other hand, if the USD Index does indeed rally right away, then it could move much higher before it really tops (above 89).
Theoretically, this means that gold has limited short-term upside and bigger downside. Does it?
Speaking of ratios – can the gold:USD Index ratio tell us something?
Let’s move to silver.
By opening short positions now, we would risk being thrown out of them if PMs rallied temporarily and sharply before declining again. Please recall that silver has been known for such counter-trend rallies right before plunging.
On the short-term SLV ETF chart we see that the rally was very significant on a daily basis. It was definitely good to watch this from the sidelines instead of keeping a short position open. Silver moved to the 20-day moving average, but does it mean that silver can’t move higher? It could – it’s currently correcting a huge decline, so we wouldn’t be surprised to see a move even higher – to the declining resistance line – before the upswing is over. Please note that in October silver also moved temporarily above the 20-day moving average only to decline shortly thereafter.
Let’s take a look at gold stocks.
Gold stocks moved higher last week after reaching our initial target area but that’s no proof that the decline is completely over. During the 2008 decline there were sharp corrective upswings as well, but they didn’t mean that the decline was over. The current decline has been significant, so a corrective upswing (a pause within the decline) would be something normal.
How high could gold stocks go before the decline is resumed? It’s a tough call as the market has been very volatile lately, but at this time we wouldn’t rule out a move back to the previously broken support at the 2013 low. The 38.2% Fibonacci retracement based on the recent decline is very close to it, so it seems quite likely that the 185-190 level would stop a rally.
Junior miners can also tell us something (more precisely, their performance relative to other stocks).
Summing up, the precious metals sector continues to correct its recent downswing, while remaining in the medium-term downtrend, and it seems that it will move a bit higher before turning south again.
As always, we will continue to monitor the situation and report to you – our subscribers – accordingly. We will aim to multiply the recent profits and will quite likely open another trading position shortly – stay tuned.
Trading capital (our opinion): No positions
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.
We were bullish on gold as far medium-term is concerned for the vast majority of the time until April 2013. After that we have generally been expecting lower prices. Are we gold bears? No - we view this decline as lengthy, but temporary. We expect gold to rally in the coming years, but instead of following the buy-and-hold approach, we exit the long-term precious investments at the most unfavorable times and re-enter when things look good again, thus saving a lot of money. Additionally, our Gold & Silver Trading Alerts help you profit from the short-term price swings. We invite you to examine our premium services and encourage you to sign up for our free mailing list today.
Przemyslaw Radomski, CFA
Tools for Effective Gold & Silver Investments - SunshineProfits.com
Tools für Effektives Gold- und Silber-Investment - SunshineProfits.DE
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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.