Briefly: In our opinion no speculative positions in gold, silver and mining stocks are now justified from the risk/reward perspective. However, day-traders might consider a small speculative long position in silver.
Even though gold didn’t react strongly to Mario Draghi’s comments, a lot happened in the precious metals market yesterday. We finally saw a breakdown in mining stocks and we saw an extreme daily rally in the USD Index. As you know, the USD Index very often triggers significant moves in gold. Even though the last 2 days didn’t bring any changes, the situation has just become very tense for the precious metals investors and traders. What are the implications for your precious metals investments and trades?
Let’s examine the charts and find out (charts courtesy of http://stockcharts.com).
As you know, the USD Index is right at the cyclical turning point (or slightly behind it, which doesn’t change anything), so it’s likely to change its direction. Since it moved above the Sep. 2013 high in a very sharp manner, you might be wondering if there was something important that stopped the rally yesterday and that could prevent further gains for at least a while.
At this point quoting comments from yesterday’s second Gold & Silver Trading Alert is appropriate:
Now, we know that gold hasn't reacted to the dollar's strength, but that doesn't guarantee that it won't react to the dollar's weakness. At this time it might seem that the only direction in which the USD Index can move (given that there are talks in the U.S. about increasing interest rates and the ECB has already lowered rates) is up. That's exactly why… It could correct at this time. Remember that when everyone gets on the same side of the boat, it's better to be on the other side. The cyclical turning point is here and the USD is extremely overbought from the short-term perspective.
Since the size of the uncertain (given the situation in the USD Index) decline is not that significant and the chance of a corrective upswing is relatively high (again, because of the USD), it seems better to stay on the sidelines for a few more days. We will know much more once we see how gold reacts to the dollar’s weakness.
What about mining stocks?
Summing up, the situation in the precious metals market is very tense. The medium-term trend remains down and we saw breakdowns in gold, silver and mining stocks, but at the same time the situation in the USD Index (which has been a major factor in determining the PMs’ and miners’ price swings) suggests that we could see a corrective upswing.
The most important thing is that the situation doesn’t really impact the medium-term outlook (after all, long-term investments are usually the biggest part of one’s portfolio), which remains bearish. The situation is only very tense for the short term. In this case, it seems that waiting on the sidelines is still appropriate – when in doubt, stay out.
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.
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.