Gold & Silver Trading Alert #2
It’s less than one hour before the trading week ends, so I’ll keep this relatively brief.
Based on today’s massive reversal in the USD Index, I think that closing the current short positions in junior mining stocks (and all other short positions that remain open in the precious metals market, including gold and silver and related instruments) and taking profits off the table is justified from the risk to reward point of view.
In other words, at this moment I no longer thing that keeping short positions in junior miners is a good idea.
Of course, this doesn’t mean that I think that the entire medium-term decline is over. No. I think that it will continue, but I think that based on what we just saw in the USD Index makes a corrective downswing in the USDX – and a corrective upswing in the precious metals sector a quite likely short-term outcome. It’s too likely for me to continue featuring a short trading position in any part of the precious metals sector.
I expect to re-open the short position relatively soon – perhaps as early as next week, but even if not, then very, very likely this month.
I’m not opening a long position here. The odds for a continuation of the decline and the move to my original target for the GDXJ (at about $27) are too big for that.
In other words, the short-term outlook right now is too neutral for any position in gold, silver, and mining stocks in my view. Again, even if PMs decline from here, the risk associated with continuing to have a position that aims to benefit from such a move is too high.
Yes, I know, it would be ideal to profit also on all the corrections (like we did with the previous one), but this time the market simply doesn’t provide us with a risk/reward that’s favorable enough, and it's critical not to take unnecessary risks in the market (and that’s usually a good rule for other areas of life as well, by the way).
If one prefers to ignore the short-term price swings and stick to the medium-term moves, then – of course – one doesn’t have to close the short position. It’s your capital after all, and you can do with it whatever you want.
Either way, congratulations on the huge profits that you just made! Have an awesome weekend!
As always, we’ll keep you - our subscribers - informed.
Przemyslaw K. Radomski, CFA