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.
Source: (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.