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.
It’s often the case that the most important action is taking place in a market that very few people focus on at any given moment. That happened once again.
Gold is soaring, the dollar is tumbling… Of course, only at first sight, but that’s what people are generally talking about nowadays. I don’t mean to explain why it’s actually the opposite and how the above is only a short-term phenomenon and that long-term trends and charts point to something quite different. No. I did that on Friday and on the previous days, and everything that I described in my Friday’s detailed Gold Trading Alert remains up-to-date at this time – especially given that junior mining stocks declined on Friday and gold futures are down in today’s pre-market trading.
On a side note, if you haven’t had the opportunity to read Friday’s Gold Trading Alert, I strongly encourage you to do so today.
Do you remember about… Bitcoin?
You know, that e-currency that was supposed to become the mainstream payment method that would give the power back to people, but instead became the inspiration for government-regulated/controlled cryptocurrencies that would effectively give The Powers That Be even more control.
Let me remind you of what I wrote about it several months ago. Quoting my November 23, 2022 Gold Trading Alert:
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Remember when I previously commented on the link between juniors and cryptocurrencies? What I wrote back then was particularly important with regard to the less known (obscure?) ones with a shady background. In fact, some even call them “shitcoins.”
I wrote that for many individual investors, cryptocurrencies became the “new precious metals market.”
Alternative payment system? Just like gold, right?
There’s a flagship asset (gold, Bitcoin).
There’s a less expensive but obviously more useful asset (silver, Ethereum).
There are a number of little-known assets that are risky but have the potential to provide massive returns (high-quality mining stocks, low-quality mining stocks, especially low-quality junior mining stocks, altcoins, or "shitcoins"). While gold was not doing much, the wild rallies in cryptos got much more attention. That was finally exciting!
So, individual investors flocked from the precious metals market to cryptos. Not all investors, of course, but many.
While cryptos were on the rise and the overall sentiment was positive, investors dropped their PM holdings to buy cryptos as they forecasted that the latter would continue to rally “to the moon.” And while it didn’t matter that much for gold, as the yellow metal has powerful buyers and sellers that are not interested in cryptos, it mattered a lot to the junior mining stock sector as the buying power waned.
Fast-forward to the current situation, every other day we hear or read about yet another crypto scandal, while prices of cryptocurrencies are declining sharply.
This means that the above-mentioned effect could have been reversed. The investors who moved out of the junior mining stock sector in order to get into cryptos (in particular altcoins) could now be aiming to get out of that market (people tend to sell on declines. In fact, that’s why declines happen in the first place) and get back to what they “had liked” before – junior miners.
This specific phenomenon can be seen from a broader point of view when one compares the prices of gold and bitcoin.
As I wrote, the link is likely stronger in the case of altcoins and juniors, but gold and bitcoin have price data that’s more comparable, so that’s what I’m going to analyze.
Even though both gold and bitcoin moved higher between 2014 and now, they quite often moved in opposite directions in the short run. Short-term bottoms in gold, in particular, were usually followed by (larger or smaller) declines in bitcoin.
Interestingly, I originally featured the above chart many months ago, and please note that this tendency worked like a charm recently.
Gold formed a short-term bottom, rallied, and now Bitcoin slides. Why? Probably because people were fed up with Bitcoin’s inability to hold its ground, while gold soared. So they flocked to gold, silver, and - probably most intensely so - to junior mining stocks.
All right, so does this mean that as Bitcoin slides into the abyss, junior miners are now going to soar?
No.
No market moves up or down in a straight line, right? Well, neither does Bitcoin. How low is too low, then? That’s where technicals come in.
Remember when I wrote that Bitcoin was topping at about $50,000? Well, it did move a bit above that, but it didn’t trade there for long.
The flagship crypto fell like a stone in water, and it did so in tune with the technical principles. Bitcoin formed a bearish head and shoulders top pattern, and after breaking below the neck level earlier this year, it then corrected a bit, and then it plunged below $20,000.
All this is a textbook-example of how a head and shoulders pattern should work.
Now, the size of the decline based on this pattern is likely to be equal to the size of its head. I marked that with dashed lines.
Guess what – Bitcoin just moved to this target level (marked with green) recently. That is a strong indication that the bottom has been reached. The second indication comes from the huge volume that just accompanied the decline and the fact that the decline was quite sharp. The ROC (rate of change) indicator at the top of the above chart is close to -25 and when this happened and bitcoin was after a huge-volume decline, it then rallied.
What is even more interesting is that those were also the times when gold declined.
The sentiment itself is the final indicator that a short-term (!) bottom for bitcoin is in or near. Just go to any news website and look at what is being written about Bitcoin – it’s all scary and bearish. Or at least the majority of news/articles. That's what happens when prices fall to their lowest point. Remember what was written on those same pages when bitcoin was trading above $50,000? It was all sunshine and rainbows. All this time, I warned about the incoming slide. Very few listened then, just as very few want to hear about the upcoming slide in junior mining stocks.
Anyway, here’s how frequently people search for “crypto scam” on Google (chart courtesy of Google Trends).
The other distinctive peaks in those searches were in May 2021 (a major top and major decline in Bitcoin), early November 2021 (a major top in Bitcoin), and the end of January 2022 (a major bottom in Bitcoin).
The interest was this high only when there were major turnarounds in Bitcoin. And since it’s crystal clear that the previous move in Bitcoin was to the downside, it can’t be a top. Therefore, it’s likely that there’s a major bottom in Bitcoin.
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Now, why am I bringing this all back today? Because just as it seemed likely that Bitcoin would bottom back then (and it did! It turned out that I picked the Bitcoin bottom very accurately), it seems that the BTC has just topped right now. And if not, it’s in a topping pattern.
Why would I think that this is the case?
Because of three reasons.
The first reason is purely technical. After a sizable short-term rally, bitcoin approached its very strong resistance level in the form of the mid-2021 bottom. That was the level that stopped the decline in mid-2022 (only for a while, but still), and it also stopped the corrective downswing in early 2021. Reaching this level is – on its own – a good reason to think that the move lower is about to start. However, it’s more of a precise price level of a turnaround than the real reason for the price to move south again (evidence that the market really wants to move in the opposite direction).
The second reason is somewhat between being precise and being imprecise, but supportive of the overall tendency to head south. It’s the shape of the price move itself. The rally took the form of a zigzag, which is common during corrective upswings.
The third reason is not precise at all, but it’s an overwhelming force that affects all markets. And it’s what I’ve been writing about for quite a few days now. Namely, it appears that it is the investment public that is entering the market right now – or it has already entered. As a reminder, assets with weak fundamentals / outlook but low prices tend to be bought excessively by people who don’t analyze them but rather buy them because they are cheap (without considering that they might be cheap for a good reason).
A few years ago, it seemed that Bitcoin had great fundamentals – like gold, but better because it was less bulky, not so old-fashioned, etc. But now? With governments ready to take over this market, it’s only a matter of time before some sort of crypto is used officially. Is there a good reason not to ban Bitcoin transactions then (from the governments’ point of view)? And it would be really easy to do so, too. It’s not gold that you can hide, right? Do you think that people owning Bitcoin in Ukraine had an easy time exchanging it for necessary goods? Without things like… electricity?
So, yeah, the fundamentals are not as positive as they used to be. And more precisely, they are exactly as they were previously, but some things were not as clear as they are right now (governments taking over the landscape).
- But PR! You were generally right about Bitcoin’s top, you were on the spot about its bottom, and you might be right about this top, too. But why are you telling me this? What does this have to do with junior mining stocks?
Quite a lot.
You see, previously, Bitcoin, other cryptos, and in particular, less-known altcoins (a.k.a. “shitcoins” – ok, I admit, I laugh at least a little when I’m reading this word) were seen as something “alternative” to junior mining stocks and the precious metals market in general.
However, as time went on, it seems that they all started to be viewed similarly. No wonder – as it turned out that cryptos are not the “perfect asset” that only goes up in value, it became obvious that one might need both for the same purpose of hedging against fiat currencies’ demise: precious metals and cryptos. Therefore, cryptos became more “like PMs” instead of their “new, alternative version”.
It's easier to show what I mean on the chart. In fact, the important – for us – implication is right there, anyway.
The key thing is this: the tops in Bitcoin align with or slightly precede the tops in the GDXJ. This is especially the case when the RSI for the GDXJ is close to 70.
Both apply right now! The RSI is close to 70, and bitcoin – as I wrote earlier today – appears to be topping.
I used vertical, golden lines to mark tops in Bitcoin and in the GDXJ, and I used the black, dashed lines to show you the difference between the timing of tops.
The interesting thing right now is that Bitcoin formed an initial top several days ago, and this is the second top that we’ve seen. If we count the first top as the real one, then the delay between that top and the most recent GDXJ top is in tune with the previous delays. Therefore, it would be likely that the top is in from the GDXJ-Bitcoin link point of view.
However, it seems most likely – at least from my point of view – that we can treat the recent double top in Bitcoin as something similar to what we saw in late 2021. The second top was also slightly higher back then. And the GDXJ also moved higher, while Bitcoin moved just a little over the previous top. That mid-November 2021 top was the final top – and it was followed by a sharp decline. The same appears likely also this time.
All in all, while I covered the most important points regarding junior miners, other miners, gold, silver, stocks, and the USD Index on Friday, it turns out that the top in junior mining stocks appears to be in or at hand, also when taking Bitcoin into account.
Just as the night is darkest before the dawn, it “seems most bullish” right before the biggest slides.
Stay strong.
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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 the peace of mind and calmness required to approach the markets with maximum objectivity and to provide you with a service of the highest quality – and the 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 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 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 lot of value can be created through this kind of collaboration :).
Overview of the Upcoming Part of the Decline
- It seems that we’re seeing another – and probably final – corrective upswing in gold, which is likely to be less visible in the case of silver and mining stocks.
- 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.
- 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, we recently took profits from the additional FCX trade (right before the trend reversed!) and the current short position in junior mining stocks is – in my view – poised to become very profitable in the following weeks, and perhaps days.
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, GDXJ’s price was about to be cut in half in about a week! 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.
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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)
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
