Briefly: in our opinion, full (300% of the regular position size) speculative short positions in junior mining stocks are justified from the risk/reward point of view at the moment of publishing this Alert.
Some might consider an additional (short) position in the FCX.
I’m sending today’s analysis as a bonus for you, and you will also receive next week’s Gold Trading Alerts as they will be about the fundamental aspects of investing. Please note that if you’d like to upgrade to Gold Trading Alerts, you can do so with a 20% discount for the first paid-for period, and it also applies to yearly subscriptions.
In theory, nothing changed for the precious metals market yesterday, but in reality, it was the opposite, thanks to the signs from the USDX and stocks.
Let’s start with the latter.
We just saw a combination of verification of the breakdown below the rising support line and an intraday reversal. Both are bearish developments, and their combination indicates that lower – likely much lower – stock market prices are to be expected.
For now, stocks are still at their 50-day moving average and their June highs, but once these support levels are broken, the fall is likely to be substantial.
Why?
Because stocks were just very overbought, as proven by the RSI indicator (moved well over 70), and when we saw similar developments in the past, it meant that huge declines were about to start. We saw that in early 2022 and in August 2022. Compared to those declines, we have seen nothing yet.
Interestingly, so far, the pace of the decline is very similar to the pace at which stocks declined on the two above-mentioned occasions.
Also, please note the red rectangle – it shows how weak mining stocks (brown line) have been compared to what the S&P 500 did – extremely so. When stocks declined earlier this month, miners declined significantly. Consequently, the above points to much lower mining stock values in the near future.
The USD Index did almost nothing in terms of the daily price changes, but this nothing was meaningful. This way – by not declining – the USD Index confirmed its breakout above the declining, green resistance line. This is a very bullish development.
Besides, it’s not that we didn’t seen any action yesterday – we did see it, but it happened during the session.
The USDX tried to move lower and… Failed, as the bullish forces pushed it back up.
What’s particularly interesting is that this reversal – and an intraday bottom – formed right when the support and resistance lines crossed. The triangle-vertex-based reversal technique worked once more. And it worked just as well as it did in a different fundamental and geopolitical situation, simply because the underlying factors: emotional buying and selling due to fear, and greed don’t really change over time. And it is due to this that the technical analysis will continue to work when the economic landscape changes even more.
Moving back to the precious metals sector, as I wrote previously, nothing really happened in it and this means that my previous comments on the junior miners remain up-to-date:
Another day, another decline in the junior miners. That’s the new reality. And with just a small push, the waterfall selling will start.
Why? For instance, because of the head-and-shoulders pattern that is about to be completed.
The rising, red support line was broken, and the breakdown was verified last month, so it’s already quite clear that the next big move is to the downside. There is, however, another support line (marked with blue) that is particularly important at this time.
This blue line is not important just on its own, but because it’s a part of a bigger pattern called “head and shoulders”. This line serves as the neck level of the pattern, and the way those patterns work is that after the breakdowns below the neck levels (once they’re verified!), the price tends to decline and the size of the move lower is usually equal to (or greater than) the size of the head of the pattern.
I marked this with blue, dashed lines. This pattern (btw, we see something analogous in the price of gold) suggests a move lower – to the $26 level, which is in tune with other techniques pointing to this as being the intermediate target level.
On a very short-term basis, we might see a correction from the previous 2023 low close to $33. Why? Because – as I wrote above – the breakdowns below the neck levels usually need to be verified by a corrective upswing – oftentimes back to the previously broken neck level.
So, a move higher from about $33 to about $35 would be quite likely from the above point of view.
Zooming in confirms this scenario even more.
Looking at the orange ellipses immediately shows which part of the previous decline is currently being repeated. We see a consolidation that follows a move below the previous lows.
What happened next during a similar, recent decline? We first saw another move lower, and then a bigger correction, before the decline resumed.
This perfectly fits the previously described scenario.
Also did I mention that 2023 is already a down year for the GDXJ and the price of silver? Because this actually is the case (despite moves lower in the USDX and moves higher in the main stock indices), which further emphasizes the reliability of the bearish narrative.
Something big is brewing for the precious metals sector, and in particular for junior mining stocks – are you ready?
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Overview of the Upcoming Part of the Decline
- It seems that the recent – and probably final – corrective upswing in the precious metals sector is over.
- If we see a situation where miners slide in a meaningful and volatile way while silver doesn’t (it just declines moderately), I plan to – once again – switch from short positions in miners to short positions in silver. At this time, it’s too early to say at what price levels this could take place and if we get this kind of opportunity at all.
- I plan to switch from the short positions in junior mining stocks or silver (whichever I’ll have at that moment) to long positions in junior mining stocks when gold / mining stocks move to their 2020 lows (approximately). While I’m probably not going to write about it at this stage yet, this is when some investors might consider getting back in with their long-term investing capital (or perhaps 1/3 or 1/2 thereof).
- I plan to return to short positions in junior mining stocks after a rebound – and the rebound could take gold from about $1,450 to about $1,550, and it could take the GDXJ from about $20 to about $24. In other words, I’m currently planning to go long when GDXJ is close to $20 (which might take place when gold is close to $1,450), and I’m planning to exit this long position and re-enter the short position once we see a corrective rally to $24 in the GDXJ (which might take place when gold is close to $1,550).
- I plan to exit all remaining short positions once gold shows substantial strength relative to the USD Index while the latter is still rallying. This may be the case with gold prices close to $1,400 and GDXJ close to $15 . This moment (when gold performs very strongly against the rallying USD and miners are strong relative to gold after its substantial decline) is likely to be the best entry point for long-term investments, in my view. This can also happen with gold close to $1,400, but at the moment it’s too early to say with certainty.
- The above is based on the information available today, and it might change in the following days/weeks.
You will find my general overview of the outlook for gold on the chart below:
Please note that the above timing details are relatively broad and “for general overview only” – so that you know more or less what I think and how volatile I think the moves are likely to be – on an approximate basis. These time targets are not binding nor clear enough for me to think that they should be used for purchasing options, warrants, or similar instruments.
Letters to the Editor
Please post your questions in the comments feed below the articles, if they are about issues raised within the article (or in the recent issues). If they are about other, more universal matters, I encourage you to use the Ask the Community space (I’m also part of the community), so that more people can contribute to the reply and enjoy the answers. Of course, let’s keep the target-related discussions in the premium space (where you’re reading this).
Summary
To summarize, the medium-term trend in the precious metals sector remains clearly down, and it seems that the next short-term downswing is already underway. We recently saw major reversals and the recent decline is taking place just like it’s “supposed to” take place.
Even though the stock market is higher than it was at the end of 2022, USD Index is lower, and gold is higher too, this is a down year for both: silver and GDXJ. Junior miners magnify stock markets’ declines to a huge extent, and they also magnify gold’s declines. It seems that miners just can’t wait to move to lower levels.
We’re likely to see an opportunity to take profits from the current short position in the GDXJ (and perhaps go long) if it moves below $33.
Given the current set-up in gold, silver, and mining stocks, and the USD Index that seems to be the most likely outcome. With the USDX moving to its May highs, it’s likely that the GDXJ will move to its yearly lows – and it’s 61.8% Fibonacci retracement and then they both would be likely to correct.
Consequently, I’m moving the target level for the GDXJ up and I’m also adjusting all the other targets.
This does NOT mean that the downside potential for the GDXJ decreased. The GDXJ is still likely to slide to its 2022 low, and then below it.
This means that the profit potential remains enormous.
However, the odds for a corrective upswing from about $33 are too big to be ignored. When GDXJ goes to $33 and we close our position there, it will be 9th profitable trade in a row (in case of the GDXJ – I’m not taking into account option plays or any other leveraged instruments).
Of course, since the move lower is likely to continue after the correction, one might choose to wait it out and not make any adjustments to the short position – it’s always up to you to decide how you want to approach your trades – I’m providing my opinions on the outlook.
Once the profits from the short position are in, and the GDXJ is trading at about $33 (details below), I think that entering small (50% of the regular position size) long positions in the GDXJ will be justified from the risk to reward point of view, with a binding take-profit target at $34.48. And when this target is reached in the GDXJ, I think that re-entering a big (300% of the regular size of the position – note: this is not 300% of the size of your trading capital! Just a bigger-than-usual position, but either way, don’t make it too big for you to handle emotionally in case of a temporary setback) short position in the GDXJ will be justified from the risk to reward point of view.
In other words, I plan to catch the correction with a small position and then get back on the short size of the market at higher prices to increase the overall gains.
Next week, the analyses will focus primarily on the fundamental aspects of the market as I will be away from my computer more often, so above serves as the game plan for that time. If some adjustments are necessary, I’ll keep you informed.
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Locking in those is a great idea not only because it’s perfect time to be ready for what’s next in the precious metals market, but also because the inflation might persist longer than expected and prices of everything (including our subscriptions) are going to go up in the future as well. Please reach out to our support – they will be happy to assist you and make sure that your subscription days are properly extended at those promotional terms. So, for how many year’s would you like to lock-in your subscription? Also, this might be a good time to also get interested in consultation or RMP profile – the 20% discount applies here as well.
To summarize:
Trading capital (supplementary part of the portfolio; our opinion): Full speculative short positions (300% of the full position) in junior mining stocks are justified from the risk to reward point of view with the following binding exit profit-take price levels:
Mining stocks (price levels for the GDXJ ETF): binding profit-take exit price: $32.72; stop-loss: none.
Alternatively, if one seeks leverage, we’re providing the binding profit-take levels for the JDST (2x leveraged). The binding exit level for the JDST: $8.09; stop-loss for the JDST: none.
For-your-information targets (our opinion; we continue to think that mining stocks are the preferred way of taking advantage of the upcoming price move, but if for whatever reason one wants / has to use silver or gold for this trade, we are providing the details anyway.):
Silver futures downside exit price: $22.03 (stop-loss: none)
SLV exit price: $20.12 (stop-loss: none)
ZSL exit price: $22.18 (stop-loss: none)
Gold futures downside exit price: $1,912 (stop-loss: none)
HGD.TO – alternative (Canadian) 2x inverse leveraged gold stocks ETF – the exit price: $7.22 (stop-loss: none due to vague link in the short term with the U.S.-traded GDXJ)
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the exit price: $17.08 (stop-loss: none)
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Optional / additional trade idea that I think is justified from the risk to reward point of view:
Short position in the FCX with $27.13 as the short-term profit-take level.
Long-term capital (core part of the portfolio; our opinion): No positions (in other words: cash)
Insurance capital (core part of the portfolio; our opinion): Full position
Whether you’ve already subscribed or not, we encourage you to find out how to make the most of our alerts and read our replies to the most common alert-and-gold-trading-related-questions.
Please note that we describe the situation for the day that the alert is posted in the trading section. In other words, if we are writing about a speculative position, it means that it is up-to-date on the day it was posted. We are also featuring the initial target prices to decide whether keeping a position on a given day is in tune with your approach (some moves are too small for medium-term traders, and some might appear too big for day-traders).
Additionally, you might want to read why our stop-loss orders are usually relatively far from the current price.
Please note that a full position doesn't mean using all of the capital for a given trade. You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.
As a reminder - "initial target price" means exactly that - an "initial" one. It's not a price level at which we suggest closing positions. If this becomes the case (as it did in the previous trade), we will refer to these levels as levels of exit orders (exactly as we've done previously). Stop-loss levels, however, are naturally not "initial", but something that, in our opinion, might be entered as an order.
Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main markets that we provide these levels for (gold, silver and mining stocks - the GDX ETF), the stop-loss levels and target prices for other ETNs and ETF (among other: UGL, GLL, AGQ, ZSL, NUGT, DUST, JNUG, JDST) are provided as supplementary, and not as "final". This means that if a stop-loss or a target level is reached for any of the "additional instruments" (GLL for instance), but not for the "main instrument" (gold in this case), we will view positions in both gold and GLL as still open and the stop-loss for GLL would have to be moved lower. On the other hand, if gold moves to a stop-loss level but GLL doesn't, then we will view both positions (in gold and GLL) as closed. In other words, since it's not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can't provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the signs pointing to closing a given position or keeping it open. We might adjust the levels in the "additional instruments" without adjusting the levels in the "main instruments", which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets. We are already working on a tool that would update these levels daily for the most popular ETFs, ETNs and individual mining stocks.
Our preferred ways to invest in and to trade gold along with the reasoning can be found in the how to buy gold section. Furthermore, our preferred ETFs and ETNs can be found in our Gold & Silver ETF Ranking.
As a reminder, Gold & Silver Trading Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent, we will send you an additional small alert before posting the main one.
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On a side note, while commenting on analyses, please keep the Pillars of the Community in mind. It’s great to provide points that help others be more objective. However, it’s important to focus on the facts and discuss them in a dignified manner. There is not much of the latter in personal attacks. As more and more people join our community, it is important to keep it friendly. Being yourself, even to the point of swearing, is great, but the point is not to belittle other people or put them in a position of “shame” (whether it works or not). Everyone can make mistakes, and everyone does, in fact, make mistakes. We all here have the same goal: to have a greater understanding of the markets and pick better risk-to-reward situations for our trades. We are on the same side.
On another – and final – side note, the number of messages, comments etc. that I’m receiving is enormous, and while I’m grateful for such engagement and feedback, I’m also starting to realize that there’s no way in which I’m going to be able to provide replies to everyone that I would like to, while keeping any sort of work-life balance and sanity ;) Not to mention peace of mind and calmness required to approach the markets with maximum objectivity and to provide you with the service of the highest quality – and best of my abilities.
Consequently, please keep in mind that I will not be able to react / reply to all messages. It will be my priority to reply to messages/comments that adhere to the Pillars of the Community (I wrote them, by the way) and are based on kindness, compassion and on helping others grow themselves and their capital in the most objective manner possible (and to messages that are supportive in general). I noticed that whatever one puts their attention to – grows, and that’s what I think all communities need more of.
Sometimes, Golden Meadow’s support team forwards me a message from someone, who assumed that I might not be able to see a message on Golden Meadow, but that I would notice it in my e-mail account. However, since it’s the point here to create a supportive community, I will specifically not be providing any replies over email, and I will be providing them over here (to the extent time permits). Everyone’s best option is to communicate here, on Golden Meadow, ideally not in private messages (there are exceptions, of course!) but in specific spaces or below articles, because even if I’m not able to reply, the odds are that there will be someone else with insights on a given matter that might provide helpful details. And since we are all on the same side (aiming to grow ourselves and our capital), a to of value can be created through this kind of collaboration :).
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
