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.

         -    “Lower.”

That’s what the gold and mining stock prices are saying right now. I provided a LOT of context in Friday’s flagship Gold Trading Alert and I provided even more background in yesterday’s analysis, where I emphasized the importance of looking also at other markets while forecasting gold prices. In particular I focused on the important link between gold stocks and gold.

The prices of the former “should” be clearly linked to the price of gold, because – after all – the mining stocks are producing and selling gold. And if not, then they are looking for gold and investors being forward-looking, already discount the future revenue into the current price. And it works, but not clearly. Many other factors come into play while pricing mining stock share prices; some of them are company-specific, and others are not.

The company-specific risks can be averaged out by having a portfolio that consists of multiple mining companies or by investing in an already diversified ETF, like GDX (senior miners) or GDXJ (junior miners). The non-company-specific things that cause mining stock prices to move in one way or another, and deviate from the gold price, include emotional reasons. The stage of the bull or bear market that the market is currently in will determine if the information coming from the gold market will be amplified or discounted.

Consequently, by looking how at how mining stocks perform relative to gold, we can detect the emotional status of the market and thus greatly increase the accuracy of our price projections. Of course, there are no certainties in any market, but the above helps us push the odds in our favor.

Now, I already wrote about the below chart yesterday, but today, I’d like to emphasize that it has an additional bearish layer that’s visible from a very short-term point of view.

I added the Fibonacci retracement tool to the final part of the chart to show you how much of the recent sharp decline was corrected and what’s the current status.

The key thing is that gold (GLD ETF) is right at its 38.2% retracement, while both: GDX and GDXJ are below their 61.8% retracements.

And if that wasn’t clear enough, please look where both proxies for mining stocks ended yesterday’s session – it was below yesterday’s early (intraday) low. GLD closed above that early (intraday) low.

Now, if there was a severe decline in the general stock market, this would be normal, as mining stocks are, well, stocks. Consequently, every now and then, they get the stock market’s influence. Juniors even more so.

But no. Nothing like that is happening on the stock market – yet.

Therefore, it’s crystal-clear that mining stocks are underperforming gold due to some other reason. And in all likelihood, that reason is that the current big move in the precious metals market is to the downside. That’s what the emotional responses of mining stock investors seem to confirm.

Also, this relative weakness can be seen in how gold is performing relative to one of the key drivers of its price – the U.S. dollar.

In today’s pre-market trading, gold moved lower, and it moved quite close to its recent lows.

At the same time, the USD Index moved higher just slightly – less than gold declined.

This means that gold amplified USD Index’s indication. After all, it makes perfect sense for both to move in the opposite direction – gold is priced in the USD.

This is yet another confirmation of the current bearish case for gold, silver, and mining stocks (the entire sector tends to move lower together).

The situation is most bearish for junior mining stocks, though, which are mostly influenced by the performance of the general stock market.

The bearish case for junior mining stocks is actually even stronger due to those miners’ fundamental reality. And in case of many junior miners, that reality has four ugly letters: d e b t.

Sure, senior mining companies can (and do) have debt on their balance sheets. However, those companies have revenue streams that cover that debt, or at least the interest. Junior miners that are not producing, but just looking for gold (or developing their properties, but not producing) can face the risk of bankruptcy due to high debt cost.

Now, since the market is most likely in the “return to normalcy” stage, and investors still expect the rates to be lowered any day now (in my view very incorrectly so, because inflation is political and other issues at hand are not – at least not to that extent), the above-described effect likely is not fully priced in. In fact, it might not be priced in at all.

Again, markets are forward looking – so if investors expect the rates to be lowered shortly, then they are not projecting rates at higher levels in the future. Therefore, they don’t take the risk of bankruptcies into account – at least not to the extent that they likely should take it into account.

So, as investors start to realize that rates will not be lowered immediately, and not without a severe plunge on the stock market, junior mining stock prices are likely to slide profoundly.

In my view, there is a tremendous opportunity in taking advantage of lower junior mining stock prices in the following weeks and months. If someone allowed one to travel back to 2008 and enter positions before the slide happened, what positions would they take? Of course, they would short mining stocks (perhaps FCX as well, and perhaps many other companies that declined at that time). And now, in my view, we have the same kind of opportunity. At least that’s what I see on multiple charts that are out there. I don’t mean just the above, but also the ones that I included in Friday’s flagship Gold Trading Alert.

Speaking of the FCX, it does look like it just can’t wait to slide.

It almost completely ignored the most recent run-up in the stock market. It looks like the profits on the short positions in FCX that we entered in early April are likely to increase substantially soon. And profits from a short position in the GDXJ is likely to join in as well.

Now, let’s keep in mind that the outlook for gold, silver, and mining stocks is bearish… But it’s bearish for short- and medium-term ONLY.

I fully expect gold, silver, and mining stocks to truly soar in the coming years, so those, who insist on holding their purchases and waiting for much higher prices, are likely to get them… Eventually.

So, in a way, in my opinion, people with the buy-and-hold approach toward gold, silver, and/or mining stocks, will likely be profitable in the following years, but those who wait until this decline is complete and back up the truck at least close to the bottom, are going to be even more profitable.

And those who manage to take advantage of the current decline by actively profiting from it are likely – in my view – to reap astronomical rewards, as they would benefit from moves to both sides – first to the downside, and then thanks to the huge comeback.

The above – and my continuous analyses of the precious metals market – are likely to help one navigate those muddy investment waters and reap the above-mentioned benefits.

Now, I got the feeling that – in addition to this kind of support – many might also be interested in the “end game”. How high will gold rally ultimately? When is it time to sell gold – at what price? How much money is there to be made in the long run?

I’m usually focusing on the short term or medium term in my analyses, and I’m just saying that “well, I’m bullish for the long run”.

This issue is not that simple. In fact, it’s not simple at all because, in the long run, many (!) things can change. Things like the “monetary system” that are unlikely to change over the short- or medium term.

What should the gold price be compared to if the value of the fiat currencies evaporates?

This issue is complex, and I don’t think that I would be able to convey all the key points in a written format in an easily digestible way. And some of the things that I would be writing might require immediate explanation, which I can’t provide due to the lack of interactivity in the case of this standard format of communication.

Consequently, I decided to run a webinar dedicated to the all-important issue of gold’s long-term potential. If you are reading this, then the odds are that you might be interested in it, which is precisely why I’m writing about it here.

I’m going to additionally cover the thing that people are usually asking me about with regard to long-term investments in gold: own physical or not? If using funds is acceptable, then what funds to choose (of course, that will be just my personal opinion in general, not individual investment advice), and I’m going to also talk about the extra aspect that very few are paying attention to – the geographical diversification.

This webinar is something that I’m going to provide in addition to my regular (and intraday) Gold Trading Alerts, so it’s a separate service (single-time investment in the webinar is $199) – also from the technical point of view, as I’m going to hold the webinar right here, on Golden Meadow.

I’m going to hold that webinar and speak about the upside potential, reasoning behind it and other important (and related) matters tomorrow at 2 PM ET (which is 11 AM PT and 8 PM CET). I plan the webinar to take 60 minutes and then I plan another 30 minutes for Q&A.

If you can’t participate at those times, no worries. We got you covered. The webinar will be recorded (including the Q&A), and the recording will be made available to those who sign up for the webinar regardless of whether they attend the webinar or not.

The great thing about live participation is that you’ll be able to ask your questions and quite likely get them answered by me – live. (Of course, if there are hundreds of questions, I won’t be able to accommodate all of them, but I’ll be picking the ones that appear most relevant to the biggest number of people).

You are hereby cordially invited to participate in the above-mentioned webinar :) Please use this link to sign up, and I’ll see you tomorrow.

Overview of the Upcoming Part of the Decline

1. It seems that the recent – and probably final – corrective upswing in the precious metals sector is over.
2. 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.
3. 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).
4. 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).
5. 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.
6. 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, we recently took profits from the additional FCX trade (right before the trend reversed!) and the current short position in it is VERY profitable as well.

The short position in junior mining stocks is – in my view – poised to become very profitable in the following weeks.

Things might appear chaotic in the precious metals market right now, but based on the analogy to the previous crises (2020 and 2008), it’s clear that gold, miners, and other markets are pretty much doing the same thing all over again.

The implications of this “all over” are extremely bearish for junior mining stocks. Back in 2008, at a similar juncture, GDX’s price was about to be cut in half in about a month! In my opinion, while the decline might not be as sharp this time, it’s likely to be enormous anyway and very, very, very profitable.

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 ton of value can be created through this kind of collaboration :).

Thank you.

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief