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.
Dear readers, we’re going to be posting the next regular Gold Investment Update on Monday, but we’re sharing today’s Gold Trading Alert with you as a thank-you-for-being-with-us-and-have-an-awesome-weekend gift.
So, yeah, gold, silver, and mining stocks declined yesterday, and junior miners declined really profoundly. This did not surprise you, as I’ve been emphasizing multiple reasons due to which this was the likely outcome.
But I admit the power with which juniors declined yesterday amazed me even more than I thought it would. And I get rarely surprised by the markets.
Why did it have such an effect on me?
Because of how little it took to push the market lower!
Did you see the powerful rally in the USD Index that drove metals’ and miners’ prices lower?
No?
You didn’t see it because it wasn’t there!
Instead of declining, the USD Index actually moved a bit lower, so it didn’t contribute to PMs decline at all!
What was the trigger, then? – One might ask. In reality, markets can move without any specific trigger or event when the technical situation warrants it. Triggers can help to get the ball rolling sooner, though.
In the case of yesterday’s trading, it seems that it was the move in stocks that triggered the declines, but there’s one very interesting aspect of yesterday’s move lower in the S&P 500.
It was small.
Or actually, it was very small.
Hm, no, it still doesn’t cut it. The truth of the matter is…
It was tiny.
Yesterday’s move lower in stocks is barely visible on the above chart. One needs to zoom in to see what stocks really declined.
Even from this point of view, yesterday’s move lower is barely noticeable.
That was not even a full percent move lower. And stocks reversed before the end of the session. Nothing really changed, at least from the day-to-day point of view.
Or did it? I’ll get back to this question later, and now I’ll focus on comparing the above-described “nothing” to what happened in gold, silver, and mining stocks. Let’s start with the former.
Gold declined by over $10, which is not a lot on its own, but it’s a lot given USD’s tiny decline. Gold price is not influenced by the stock market moves to the extent that the mining stocks are, so in this case, it’s the link with the USDX that is most important.
And this kind of dynamic has a huge “SELL!” sprayed in red all over it.
Gold moved lower after moving close to its declining resistance line. I previously wrote that we might get some sort of breather based on the 38.2% Fibonacci retracement being reached but that it’s unlikely to be anything to write home about – and that’s exactly what happened.
Silver – no surprise here – did the same thing. It declined in a more meaningful manner as it’s more correlated with stocks than gold is.
Just like gold, it also bounced off its declining resistance line and now appears back in the decline mode.
And here comes the analytical dessert.
Enter junior mining stocks.
Remember when I wrote that the most recent upswing was most likely fake? The hourly volume clearly indicated that – if one knew where to look that is. But you had the information from me, so it likely didn’t catch you by surprise.
There’s no point mincing words here. Junior miners truly plunged in the last two days.
Now, while gold closed pretty much in the middle between its most recent (late-June – early-July) run-up, the GDXJ ETF closed very close to the lower border of that range.
Juniors are not only sliding here, increasing our profits and making it more likely that we’re getting a good opportunity to go long soon.
They are also weak relative to both: gold and stocks, indicating that this is just the beginning of the really big move!
This is super-exciting because while the writing has been on the wall for a long time, this is a major, clear confirmation that we get on a short-term basis. This kind of confirmation wasn’t necessary, but we do see it.
And you know what? At this pace of decline, it would take GDXJ just a couple of days to make 2023 a down year! All this while gold is about $100 above the price at which it started this year. And while the S&P 500 is almost 15% higher than at the end of 2022.
Juniors. Are. Extremely. Weak.
This creates a tremendous opportunity that will be obvious when looking at it in hindsight. It’s all like one big time-travel to 2008, but we’re before the slide. Very few people are concerned. Most are optimistic and cheerful. The obvious bearish signs are being ignored by the vast majority.
And the stocks’ outlook? I promised that I’ll get back to it. The Fed is most likely to keep raising rates. That’s what they said, and that’s what the data supports. And people appear to be realizing that.
I’m pasting a few titles that I noticed today on Yahoo! Finance.
The battle with inflation will be won only after the Fed succeeds in curbing demand. And this means lower profits for companies and lower stock prices. It’s as simple as that. And it is why Powell has been explaining on numerous occasions that his goal is not to hurt stocks – because he knows very well what needs to happen and what will happen.
And what’s also going to happen when rates increase, and inflation moves lower? The real rates will increase once again! And that’s one of the key fundamental drivers for gold prices. Higher real rates are very bad for gold. With smaller inflation and higher payments on fiat money, the need to own gold is much lower. The same with demand… And prices.
Why would they keep raising interest rates and fighting inflation? Because inflation got political, and voters are really concerned about it. That’s it.
And when the shit hits the fan and stocks do slide – it’s definitely not going to be pretty for the mainstream investor. Initially, the precious metals market – and in particular junior mining stocks! – are likely to take the burden, too. Remember how far miners fell in 2008? Exactly. And junior miners are likely to fall more than seniors due to their link with stocks.
What we saw this week is telling me – no – it’s screaming – that those dynamics are already in play. It’s almost too late to prepare. The best time to prepare was a long time ago (and if you’ve been following my analyses, you are prepared). The second-best time to prepare is today.
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 down, and it seems that the next short-term downswing has just begun. We might see an opportunity to take profits from the current short position in the GDXJ (and perhaps go long) if it moves below $33 after a quick downswing – but it’s too early to say for sure at this moment.
While I can’t promise any kind of return (nobody can), in my opinion, the recent profitable position in the FCX will soon be joined by even more profits from the current positions in GDXJ and FCX, and the winning streak of trades that started in early 2022 (so far 8 trades in a row), will continue.
If I didn’t have a short position in junior mining stocks, I would be entering it now.
Some might consider adding to the short position in the FCX.
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On an administrative note: We’ll post the big, flagship Gold Trading Alert on Monday.
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As always, we'll keep you – our subscribers – informed.
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: $26.13; stop-loss: none.
Alternatively, if one seeks leverage, we’re providing the binding profit-take levels for the JDST (2x leveraged). The binding profit-take level for the JDST: $13.87; 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 profit-take exit price: $17.83 (stop-loss: none)
SLV profit-take exit price: $16.73 (stop-loss: none)
ZSL profit-take exit price: $32.97 (stop-loss: none)
Gold futures downside profit-take exit price: $1,743 (stop-loss: none)
HGD.TO – alternative (Canadian) 2x inverse leveraged gold stocks ETF – the upside profit-take exit price: $10.97 (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 upside profit-take exit price: $25.47 (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
