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. I’m removing the protective stop-loss levels because, given the 2008-based analogy, immediate-term price moves would not provide meaningful indications, and they might distort the picture more than clarify it. I expect to put them back in place later this month.

Some might consider an additional (short) position in the FCX.

There are very few things in the financial world that have the same kind of emotional impact and similarly big contagion effect that bank runs do. And that was even way before social media became a thing!

We just saw not one, but two bank closures. The SVB collapsed, and the Signature Bank was shut down by regulators. You can read more in this Wall Street Journal article.

The Signature Bank was primarily a real estate lender, but in 2018, it expanded its operations into the crypto world.

Do you recall a time when something seemingly small triggered some problems in the real estate and credit markets?

Something like… A subprime crisis in the U.S.? And a bank collapsed? *Cough* Lehman Brothers *cough*.

This time, it’s the crypto market that was the first domino to fall. We now saw one bank’s failure, and the second one was closed by the regulators. But in investors’ minds, it might look like this: “The first bank was closed, and the second one was closed right thereafter – how many days until my bank is closed? I better get my money out now.”

The bank-run-based articles slowly start to dominate social media and other places.

Do you see where I’m getting at?

This could be 2008… on steroids.

Why on steroids?

First, interest rates have been hiked much more now than they used to be previously. This is a global phenomenon, not a U.S.-based thing only.

Second, the markets are after an even bigger emotion-and-hope-based medium-term rally.

Third, social media are more prevalent than they were in 2008, and so is the public’s participation in the market that started it all (crypto). This means that the word and emotions (like panic!) are likely to spread much faster this time.

The best (or worst, depending on the perspective) thing is that all the above came about after I’d been writing about the situation being similar to 2008 – literally – for months!

In fact, if you took advantage of my recent trade idea (that is also based on this analogy), you already profited handsomely from it, even though it’s been just a few days…

Now, most people out there don’t have this context – they don’t realize the similarity to 2008. However, it’s likely to become apparent in the following weeks. It will not happen at the same time for everyone, of course. And as more and more people realize it, the faster things are likely to develop because nobody will want to be the person left holding the bag before the price drops – so they will most likely sell before the slide happens. In this way, they will contribute to the slide and speed it up.

What does it all mean right now?

It means that stocks are likely to collapse either shortly or very soon, and that things in other markets are also likely to develop just like it happened in 2008.

The key thing to keep in mind is the existence of the contagion effect (if people get scared about stocks in one country, they are likely to get scared about them and sell in another country, even if there is no good reason for it), and the fact that interest rates were raised substantially pretty much all over the world.

This means that while the first few domino pieces might fall in the U.S., the loudest collapses might come from elsewhere.

This, in turn, means – and that’s very, very important – that the currency movement that we see initially might be misleading. In fact, that’s what we see in today’s pre-market trading. The USD Index is down quite visibly.

“There’s a bank crisis” in the U.S. – some non-U.S. investors might be thinking, so they sell the U.S. dollars for their local currencies.

However, the tables are likely to turn in a short while and the opposite is likely to take place as – after all – the U.S. economy is still likely to hold up better than most other economies (and we saw the same thing about 15 years ago). And let’s not forget that the U.S. dollar is also viewed as a safe-haven currency.

So, when it becomes obvious that the current “problem” is global, and not just U.S.-centered, the value of the USD Index is likely to soar.

And guess what happened in 2008?

Please focus on the purple ellipse in the USDX and in the corresponding action in gold.

Initially, the USDX declined, and the size of the decline was more or less similar to the size of the move lower that we just saw very recently.

But what happened next was the sharpest upswing in the USDX in decades!

The U.S. currency shot up from about 72 to about 88 in just a few months, as the precious metals sector collapsed. Silver, mining stocks, and, well, the FCX, were hit particularly hard.

Let’s leave the above 2008 link for a moment to state the obvious.

Gold benefits from strong safe-haven demand, and in times of turmoil, people tend to flock to it leave risky assets. This effect tends to be temporary.

We also saw that in 2008 – gold soared temporarily, but then it was ultimately hammered to new lows, and that was what started a powerful upswing in the following years. This is in perfect tune with what I’ve been expecting to happen – we now simply see what kind of real-world trigger might put it all into motion (to clarify: a trigger was not needed, but its existence speeds things up).

What does it mean going forward?

1. The price of gold might move in a very volatile manner in the short term (approximately for the rest of the month) as all the above-mentioned effects kick in at different times. It’s very difficult to predict when and at what price exactly gold is going to top, but it’s likely that it’s going to place this month (and yes, it might be the case that gold already topped). Fortunately, we are not featuring a trading position in gold, just one in junior mining stocks (and an extra one in the FCX). But if I held a long position in gold right now, I would either prepare myself mentally for short-term volatility, keeping the 2008 link in mind – and its aftermath – or I would simply close the position and re-enter it when gold declines again. The problem is that gold might already be close to its top or after it, and after the initial slide, it might be well below the current levels. Again, that’s why it’s part of this service to focus on the part of the precious metals sector with the best (in my view) risk-to-reward point of view – and, in my view, that’s junior mining stocks, not gold.
2. The prices of silver, mining stocks, and in particular junior mining stocks are likely to move lower in a very profound manner in the following weeks (the same with FCX), and in this case, I think it’s optimal from the risk-to-reward point of view to simply keep the positions intact. I’m removing the protective stop-loss orders/levels from them because, right now, a move in price on its own does not provide enough of a bullish indication for me to change the outlook on the trade. On a side note, even though silver futures were close to their protective stop-loss level, it was not reached.
3. It means that the odds for achieving astronomical gains in the following months have just increased, even though it might not look like it at all based on Friday’s and today’s sessions.

Speaking of Friday’s session, the key thing that happened on that day was yet another remarkable display of mining stocks’ weakness.

Even though the GDXJ rallied early in the day, it then reversed course, and while the GLD rallied in the second half of the session, the GDXJ declined substantially!

If you look at it from a medium-term point of view, the situation becomes a screaming sell signal.

The GLD just moved slightly above its early-February low. The analogous price level for the GDXJ would be $37. While the GLD erased its entire decline from early-February recently, the GDXJ erased less than one fifth of that decline – next to nothing.

This is extremely bearish and has the 2008 theme written all over it.

If 2008 continues to repeat itself, the profits on short positions in the GDXJ and FCX are likely to become breathtaking in the following weeks.

Stay tuned, and please remember that any immediate-term turmoil on the gold market is likely to be temporary – just like what we saw in 2008 before the final slide.

Overview of the Upcoming Part of the Decline

1. It seems that we’re seeing another – and probably final – corrective upswing in gold, which is likely to be less visible in case of silver and mining stocks.
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 – perhaps with gold prices close to $1,500 - $1,550.
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), and 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, after all), so that more people can contribute to the reply and then enjoy the answer. Of course, let’s keep the target-related discussions in the premium space (where you’re reading this).

Summary

To summarize, in my view, the real interest rates are up and about to soar higher, the USD Index is likely to soar, and the precious metals are likely to slide – most likely in the 2008 style. Silver, miners, and especially junior mining stocks (and the FCX) are likely to slide the most.

In the very near term, the price of gold (and, to a much smaller extent, the prices of other parts of the precious metals sector) might be chaotic, as safe-haven buying is likely to be mixed with all sorts of other factors (like the initially declining USDX and then truly soaring USDX, a falling stock market in the U.S., a falling international stock market, etc.). In consequence, I’m temporarily removing the protective stop-loss levels – the price movement simply won’t be informative with regard to the true outlook, as anything that might happen in the very near term might be misleading. On the other hand, the medium-term outlook became even more bearish.

Not all trades are worth making, and let’s keep in mind that we just profited from a quick long position and re-entered the short positions in GDXJ just $0.10 from the top in terms of the closing prices. And that’s the sixth profitable (at this moment) trade in a row.

Junior miners were ONCE AGAIN REMARKABLY weak relative to gold, which is a SCREAMING confirmation that a huge decline is likely underway.

This might be a good moment to check if the size of your position is appropriate – if it’s too big, then it’s a good idea to moderate it, but if one was just “testing the water” with a tiny amount of capital, it might be a good moment to take a more “regular” approach.

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Also, congratulations to those of you that took advantage of the extra trade that I featured in the FCX – the positions entered became profitable almost immediately, and it looks like those profits are about to increase much more in the following days/weeks.

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As a reminder, we still have a “promotion” that allows you to extend your subscription for up to three (!) years at the current prices… with a 20% discount! And it would apply to all those years, so the savings could be substantial. Given inflation this high, it’s practically certain that we will be raising our prices, and the above would not only protect you from it (at least on our end), but it would also be a perfect way to re-invest some of the profits that you just made.

The savings can be even bigger if you apply it to our All-inclusive Package (Stock- and Oil- Trading Alerts are also included). Actually, in this case, a 25% discount (even up to three years!) applies, so the savings are huge!

If you’d like to extend your subscription (and perhaps also upgrade your plan while doing so), please contact us – our support staff will be happy to help and make sure that your subscription is set up perfectly. If anything about the above is unclear, but you’d like to proceed – please contact us anyway :).

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 $34.13 as the short-term profit-take level. (stop-loss: none)

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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.

Thank you.

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