Breakdowns in gold and silver plus breakdowns in the USDX create a unique set-up.
I decided to share today’s Gold Trading Alert with you free of charge (without the trading details), as it includes an important clarification regarding the position sizing and risk control – in particular, the latter is something that I want everyone to be aware of, as it might apply not just to my analyses, but be useful universally. When reading analyses written by someone else and taking action based on it, please also keep the risk at bay. Enjoy:
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Just a brief technical note today as I already posted today’s Gold Trading Alert yesterday.
There are three charts that I’d like to show you today.
The first one features gold.
The yellow precious metal invalidated its two breakouts:
- Above the declining resistance line
- Above the 61.8% Fibonacci resistance level
Both are sell signals, especially since I just wrote the following about it:
Actually, doesn’t the gold chart remind you of something?
Gold is probably forming its third top – slightly above the 61.8% Fibonacci retracement level, while the short-term bottom leading to this decline formed below the high of the previous (pre-top) correction.
That’s exactly what gold did in 2011 after its final top, the sentiment among gold investors is certainly very similar, and the bearishness surrounding the USD Index is off the charts, while the key support levels hold. This looks like a major opportunity and it’s not about betting on even higher gold prices.
The invalidation of the move above the 61.8% retracement was the confirmation that the top was in back in 2011, and the same might be the case here.
Moreover, please note that gold broke below its rising short-term support line, which adds to the bearish case in the short run.
We see something similar in silver.
After two fake-outs (which looks similarly to the late-March / early-April performance), silver declined, and it also broke below its rising support line. Right now, silver is testing this breakdown, and if it’s successful (which is the likely outcome), the next big move will likely begin.
Finally, the USD Index is after a short-term breakout, and at the same time it’s back above its 2023 low and the previous local lows.
All those are bullish signs for the short term.
Of course, the long-term points that I made about the USDX yesterday are much more important, but today’s strength simply confirms them and tells us that perhaps the short-term bottom is also in.
Consequently, my previous points remain intact.
Before summarizing, I’d like to clarify something regarding my yesterday’s section on us being net long gold.
I will quote it below once again, because those are important points to make and I want this to be clearly visible to those that recently joined us as subscribers (welcome aboard), but before I do that, I would like to provide extra context for it.
Namely, I’m NOT writing this to say that the short-term trades don’t matter. Neither am I writing this to say draw anyone’s attention away from the fact that we have not entered the short position in miners close to the recent top. The entry for silver was much better (especially given today’s breakdown and recent fake-outs), but the entry for miners is not something that I’m happy about.
In the past 20 years of my career, I have made many trading decisions that resulted in the loss of capital. That’s the worst part of this profession - being 100% focused and caring A LOT about everyone’s capital and wellbeing and not being able to deliver each and every time.
Moreover, I admit that I’ve made multiple terrible choices throughout my life in general. I am striving to continuously improve, learn from my bad trades and mistakes in general, make better choices, and provide the best value that I can to my subscribers. And to have the best possible impact on the lives of those around me.
So, no, my intention with the below section is not to hide or obscure anything.
It is to make it clear that I’ve got your back regarding the mechanisms for keeping the risk under control. I’m usually not using stop-loss orders (analyzing my own signals showed that I tend to perform better without them), so I’m regulating risk through position sizes and diversification between strategies. If you click on one of the “portfolio” links, you’ll see that I put a lot of effort into the research behind it.
Where I might have failed is in balancing the emphasis that I put on trading (this is where most changes happen, so I naturally write more about it) with the emphasis that I put on the insurance part of capital and the need to stay protected against severe market turmoil. A few links that are placed close to the end of the analyses might be clear but are not nearly as exciting as the analyses. Consequently, I wrote the below section to make sure the bullion part of the portfolio also gets enough credit.
By the way, we received several questions about the physical holdings and the IRAs (for tax savings) – those guys provide a good guidebook that will likely explain everything. And if not, if you enter your e-mail in their form, they will reach out and you can ask them some questions (without the need to buy anything from them, if you decide that it’s not for you). We’re featuring a link to them as they provide good, fast service and they have great reviews, but please don’t feel obligated to make any investments that you are not comfortable with. It’s your capital and your decisions as to what to do with it – we’re here to help and point you to resources that we think are valuable.
Having said that, here’s the quote from yesterday’s Gold Trading Alert:
We’ve Been Net Long Gold, Remember?
Before summarizing, I would like to emphasize something that many people seem to get wrong about my analyses. Namely, people sometimes say that I’ve been shorting gold, which is completely not true. There were a few local short trades in gold, and there were a few local long trades in gold, but almost all of the time in the past months and years, I haven’t been trading gold at all. In fact, we’ve been long gold for years through the insurance part of the portfolios.
At the end of each Gold Trading Alert, there’s a summary section, and one of its components is:
“Insurance capital (core part of the portfolio; our opinion): Full position. If you’d like to buy gold or silver (for example through your IRA – you get a guidebook on that over here), I suggest that you do so through one of the top gold dealers.”
This has been kept at “full position” since its inception many years ago. Furthermore, if you click the “portfolio” link above, you can read inside of the report that the insurance part of the portfolio (being long gold) should be kept intact “even when you think that gold and silver may decline.”
While I’m not telling anyone how much they should invest, the above report provides three sample portfolios (beginner, trader, and long-term investor), and they have the following sample weights:
- Beginner: 44.1% as insurance (being long gold), max. loss per trade 0.1% of capital (so, even if the size of the trade was put at 300% of the above, it would still be max loss of 0.3% of the capital)
- Trader: 17.6% as insurance (being long gold), max. loss per trade 2%
- Long-term investor: 33.6% (being long gold), max. loss per trade 1%
Yes, I am writing in my analyses about gold, silver, and mining stocks, and I’m usually writing about gold as that’s the simplest way to discuss the short- or medium-term outlook. However, it doesn’t mean that I think that being out of the gold market completely is a good idea! Or that if I’m being bearish on gold, that I’m shorting gold, and not something else from the precious metals market (like miners or silver, which is the case right now).
The bottom line is, if someone followed by Gold Trading Alerts indications, they were pretty much always net long gold with periodic hedges through mining stocks, and sometimes other assets.
If this is surprising, please feel free to review ANY of the Gold Trading Alerts that I have posted in recent years. The portfolio report is not linked once, but three times in each summary.
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Having said that, I still think that gold is going to decline in the following weeks. I think that it’s a good idea to be shorting miners and silver (as well as NEM and FCX) here, but I also continue to think that keeping one’s gold/silver in the insurance capital remains to be justified.
Thank you for reading today’s premium Gold Trading Alert. And for staying with me throughout those volatile times – I know it’s been tiring and oftentimes boring. I deeply appreciate that. Given all those indications that we have right now, it looks like there’s a profitable future ahead of us.
As always, I'll keep you -- my subscribers -- informed.
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Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief