Briefly: In our opinion speculative short positions (half) are justified from the risk/reward perspective for gold, silver, and mining stocks. The most important thing that we saw in the markets yesterday was the major decline in the USD Index and the lack of proper response from gold, silver and mining stocks. Such a bullish factor should have made precious metals move much higher – but they didn’t… Or did they? (charts courtesy of http://stockcharts.com).
Gold didn’t even rally on Tuesday. It declined by $1.80, which is odd and bearish given that the USD Index declined heavily. The decline itself wasn’t significant, but we can point out that gold didn’t move above the 50-day moving average. Basically, the Tuesday session was bearish on its own. Since the currency markets were so important on Tuesday, let’s take a look at both: the USD and Euro Indices.
Generally, we saw a breakout above the declining, long-term resistance line in the Euro Index. At this time, however, the breakout is unconfirmed, and without meaningful implications. What’s more important, though, is how gold and silver reacted. They didn’t. Gold and silver moved just a little higher and that’s highly visible underperformance in case of gold and silver. They are not even close to moving to their 2014 highs.
Meanwhile, the USD Index moved significantly lower. In this case “significantly” means that it moved to the 2013 low, and that’s a major support level. Gold and silver are not even close to their previous highs, and this means that they are underperforming the USD Index, and as soon as the latter rallies, the former will decline. Are there any sings suggesting that metals are about to move lower? Yes! The cyclical turning point for the USD Index suggests a move higher as the current move has definitely been down. This means that when things change, the precious metals market will get a bearish push and that it will then decline significantly. The outlook for the precious metals market, therefore, remains bearish.
Summing up, the way precious metals market reacted to the U.S. dollar’s move lower (to the 2013 lows) is a bearish sign, and it confirms the bearish outlook that we outlined in previous alerts.
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
Przemyslaw Radomski, CFA of Sunshine Profits, Guest Contributor to MiningFeeds.com
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.