Briefly: In our opinion short speculative positions in gold (half), silver (half) and mining stocks (full) are justified from the risk/reward perspective.
The decline in the precious metals sector continues, as indicated in the previous alerts. Gold, silver and mining stocks have declined once again and appear to be headed lower also today. Did yesterday’s price action change anything? Let’s take a look (charts courtesy of http://stockcharts.com). Today we will start with silver and mining stocks.
The reason that we’re starting with mining stocks is that definitely nothing changed in this picture. The situation was particularly bearish and still is. We saw another volatile drop yesterday. Actually, it might have been a little too volatile and a pause here would not surprise us.
Silver is now well below the $20 level and appears to be ready to decline some more. After all, the breakdown below the rising long-term support lines has already been confirmed.
We previously commented on the gold market in the following way:
Gold has finally moved below the rising support line. The implications are bearish but not strongly bearish just yet, as the breakdown is not confirmed. If we see two more closes below this line or a close below $1,300 level, we will view the breakdown as confirmed.
At that time, we might open a speculative short position in gold and/or exit the long-term investment (currently keeping half of the regular position is justified in our opinion).
Gold is currently already below the levels we saw before the Crimea crisis even though the situation is not more stable than it was back then. This is a kind of underperformance of the yellow metal and a bearish sign. If Russian troops advance further into Ukraine, the price of gold might jump again. If that doesn’t happen, the decline is likely to continue.
Next page: The technical case