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.
The USD Index is on the rise, and the precious metals sector is declining. Big things can have small beginnings, though, and that’s normal.
In yesterday’s analysis, I focused on what’s currently most important from the medium- and short-term point of view on… pretty much all markets because (almost?) all of them are connected to the stock market and/or the forex market in one way or another. Gold, silver, and miners are no exception, of course, and we saw major weekly reversals as well.
The bullish reversal that we saw in the USD Index last week was followed by a small daily rally yesterday – a completely normal phenomenon.
The USDX closed visibly above the previous 2023 low in terms of the daily closing prices, which means that the breakdown to new yearly lows has now been 100% invalidated. This is profound and very bullish.
Of course, yesterday’s 0.29 index point move higher was nothing to write home about, but it’s normal for the market to climb back up one step at a time and not shoot up regardless of historical patterns.
To be precise, this kind of rally is also in store, but they should be treated as something extraordinary, not ordinary.
“Slow is smooth; smooth is fast.”
And that’s how USD Index’s rally might be at the beginning.
Just as the USD Index is taking a measured approach to rallying, gold, silver, and miners are taking a measured approach to their declines… So far.
The $4.40 decline we saw yesterday is almost nothing, but it seems like we’re about to see gold move back below its 50-day moving average, which will serve as the final confirmation that the top is in.
Back in mid-2022, when we saw a move above the 50-day moving average and then a move back below it, it was when the decline really picked up. And we’re likely about to see the same thing. That’s why I added “so far” at the end of the last sentence above gold’s chart.
Besides, the Stochastic indicator at the bottom of the chart is already after a major sell signal.
Silver declined more visibly, sliding by 1.1% yesterday. It already outperformed gold on a very short-term basis, and it’s clear that that particular sell signal is already in place. The current weakness of the white metal doesn’t change it.
The junior mining stocks were down by almost 1% yesterday, and they are performing exactly as they were likely to based on multiple factors that I had covered previously. Quoting my comments on the previous nonfarm payroll statistics and mining stock prices:
“Most importantly, though, the above chart shows that the current situation is EXACTLY like it was after the previous surprisingly bad (low) non-farm payroll reports.
You see, there were just three cases in the recent past when the job statistics were below the expectations, and I marked all of them with red, vertical lines. See anything in common?
I sent the info to my subscribers immediately after the report was released warning about the real impact that it’s likely to have. While the immediate-term aftermath could have been positive or relatively neutral, the medium-term implications are clear. Junior miners are likely to slide.
The most bearish thing about this analogy is… The most recent rally.
“Huh, how can a recent rally be bearish?” – one might ask.
The point is that based on the recent rally, the clearest analogy is now to the 2022 top, the rally, and the report that preceded it. Well, what happened after that top? Buying GDXJ then wasn’t a good trading strategy, as the GDXJ’s value was approximately cut in half over the next several months.
And all that is on top of all the weekly reversals that I mentioned throughout today’s analysis!
Just a repeat of that would imply a move to about $20 in the GDXJ. Let nobody tell you that a move to “just” the 2022 low in the medium term is excessive – that’s actually just a part of what’s likely based on what GDXJ already did in the past.”
One thing that you might be concerned with is the fact that we saw a daily rally in the S&P 500. It should reverse after a weekly shooting star reversal, right?
Well, yes, and no.
Yes, based on the pattern itself.
No, based on the analogy of how stocks topped at the beginning of 2022. After the weekly reversal, they moved slightly above the previous week’s high only to slide shortly thereafter and close at new lows.
If history is to repeat itself, then the fact that we saw a small (0.4%) move higher is not really bullish but a part of the bearish analogy.
So, yes, the weekly reversals in gold, silver, miners, USD Index, and stocks continue to play and extremely important part in determining the near-term and medium-term fate of the precious metals market. And it doesn’t look good.
What does it all mean? In short, the counter-trend corrective upswing is likely over, and huge declines are likely just beginning. The huge profits that we recently reaped in the FCX recently are likely to be joined by massive profits from the current short positions.
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 (despite last week’s corrective upswing).
What we saw in the USD Index, gold, silver, and – in particular – mining stocks (weekly reversals) as well as the way gold reacted to USD Index’s decline (it almost didn’t) along with specific relative performance of silver (strength) and miners (weakness) all suggests that the top in the precious metals market is in or at hand.
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 or at lower levels – 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.
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
