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 conflict in the Middle East is escalating, and gold’s ~$30 rally reflects it. What’s gold’s next move from here?
That is a great question to which there is no great answer, at least as the short term is concerned.
However, not having 100% certainty regarding the future and not having a strategy regarding handling the unknown are completely different things. And while the short-term outlook for the precious metals market remains unclear, the medium-term outlook remains clearly bearish, and the downside potential for the junior mining stocks remains enormous (and so does the profit potential for the short positions in the GDXJ).
The thing that’s making the current situation difficult is that there are two opposing forces at work right now:
- Traditional technical analysis’ indications that mostly (at least in my opinion) continue to point to lower prices.
- The likelihood of seeing increased tensions in the Middle East is relatively high.
With regard to point 1., pretty much everything that I wrote in yesterday’s intraday Gold Trading Alert remains up-to-date. Quoting:
“
As I wrote in Thursday’s and Friday’s regular Gold Trading Alerts, I’m still traveling today, which is why there was no regular Alert today. However, since the gold moved sharply higher today, you might be concerned if anything changed regarding the current outlook, and – most importantly – if the current short position in the GDXJ is still justified from the risk to reward point of view.
In short, the extremely bearish outlook for the precious metals market remains intact for the medium term (following weeks and months).
As far as the short term is concerned (following days), what we saw today seems to be a part of the verification of the breakdown below the previous support levels.
In the Gold Trading Alert that I sent to you on Friday, after the markets closed, I wrote the following:
We saw a daily rally, but the entire situation didn’t warrant adjusting our trading positions. If the rally continues, we’re likely looking at not more than a move to $33 in the GDXJ, so the possible (not necessarily likely) upside is very limited. At the same time, the potential for the decline is big, with the higher of the target levels at about $28.
Today’s intraday high in the GDXJ is (as of the moment of writing these words) $32.67, which is below the $33 level that I mentioned. So no, nothing really changed.
As long as the GDXJ remains below the rising red resistance line, the short-term outlook remains clearly bearish. And even if it moves above it, it’s likely to reverse and slide shortly.
Also, please note that today’s move higher in the precious metals market is probably based on the geopolitical news that just made headlines:
“Islamist militant group Hamas launched a large-scale attack on Israel on Saturday, prompting a declaration of war in response.”
Geopolitical news tends to have only a temporary effect on the markets. And even though it’s been proven many times, nobody usually wants to agree to that when things are really hot.
Gold tends to rally particularly strongly on geopolitical news, while it’s not necessarily the same with silver and mining stocks, but today, they are all moving higher, as they were oversold, anyway.
They were likely to get more oversold based on the strength of the momentum, but the escalation of the conflict triggered a rebound. Every now and then, such surprises hit the markets – it’s normal.
This move higher is likely to be reversed, and the GDXJ is likely to slide anyway, and we simply might need to wait an extra several days (a week or even two, perhaps) for the GDXJ to move to new lows, but since the sharp move lower could return at any day in the near term, I don’t think that changing the current positions is justified from the risk to reward point of view.
Besides, let’s keep in mind that even if things don’t go our way, and the “stop-loss” orders are triggered, it will be below our entry levels, so we would still realize profits from this position (which is why I put “stop-loss” in quotation marks).
When the war in Ukraine was starting, the tension was building over weeks, and there were many threats / levels of escalation. In this case, the situation was much quicker.
Besides, the stock market moved higher today, which might seem irrational, but it does make sense from an emotional point of view.
Stocks are after a breakdown below the neck level of the head and shoulders pattern and now they are correcting to it, before sliding further.
This aligns with GDXJ’s move higher, which didn’t invalidate the key breakdown.
Also, please note that the USD Index didn’t really move much today, so my previous comments on it remain up-to-date:
A very interesting thing happened on the USD Index chart, and in particular in the RSI indicator based on it.
The RSI just moved visibly below 70. There was only one similar case to the current one taking into account both: RSI and the USDX itself, and it was in May 2022. Back then, we also saw such a move lower in RSI and it was actually the pause before the final run-up in the USDX before a bigger correction followed.
This suggests that the USDX is likely about to rally once again, and if that happens it’s likely that it will trigger another decline in the precious metals sector.
“
As far as the medium-term indications are concerned, I covered them on Friday, and I don’t want to repeat them here, as there were too many of them.
Moving to the second point, the thing is that gold is rallying on increasing tensions. Even though the conflict is much more obvious, and it started much faster than what we saw before and during the early days of the Russian invasion of Ukraine, there are a lot of ways in which the situation can escalate.
Based on how other military conflicts happened, it’s rather likely that the tensions around the conflict will escalate further. This means that gold would be likely to move higher.
In the above case, the precious metals sector could move higher, and invalidate previous breakdowns, and make the technical picture much more bullish than it currently is. So, in a way, we’re aiming to be quicker than the technicals here.
And in reality… We were much quicker because we already placed the protective stop-loss orders days before. When they were placed, they were placed “just in case”. The “in case” scenario might be happening right now.
So, what is my preferred course of action here? If I didn’t have any protective stop-loss orders in place, I would have placed them where they are right now – a bit above the important technical levels. Why? Because if those get broken, the technical picture might change, and given the possibility of seeing the tensions and conflict escalate, this could result in a short-term rally.
However, since those protective stop-loss levels were already placed for mining stocks (and I also mentioned them for gold and silver), no additional change appears necessary at this point. In other words, you were prepared in advance.
Also, the optional, additional trading position in the FCX doesn’t have a stop-loss level, but FCX is unlikely to be affected in a similar manner as gold, silver, and junior gold and silver mining stocks. FCX is more connected to the price of copper, and copper (unlike gold) doesn’t serve as the safe haven asset of choice.
If the stop-loss levels are triggered and we… Take profits in that way (as a reminder, the stop-loss levels are below the entry price for the current short position in junior miners), then I think that having no positions will be justified from the risk-to-reward point of view – at least for a short while. The next step would be to re-enter the short position, most likely at higher prices, thus increasing our overall profitability on the huge move lower in the mining stocks.
If the decline in the precious metals market continues without triggering the stop-loss levels, our original plan to switch to long positions at about $28 will remain intact.
And that – being prepared for whatever the market does – is the strategy for the current situation.
As always, we’ll keep you – our subscribers – informed.
===
If you’d like to become a partner/investor in Golden Meadow, you’ll find more details in the above link.
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 clearly down, but based on the possible escalations of the conflict in the Middle East, it could be the case that our protective stop-loss orders are triggered.
If the stop-loss levels are triggered and we… Take profits in that way (as a reminder, the stop-loss levels are below the entry price for the current short position in junior miners), then I think that having no positions will be justified from the risk-to-reward point of view – at least for a short while. The next step would be to re-enter the short position, most likely at higher prices, thus increasing our overall profitability on the huge move lower in the mining stocks.
If the decline in the precious metals market continues without triggering the stop-loss levels, our original plan to switch to long positions at about $28 will remain intact.
And that – being prepared for whatever the market does – is the strategy for the current situation.
===
If the GDXJ declines to $28.12, it will create a very short-term buying opportunity, and I think that at that point, small (50% of the regular position size) long positions in GDXJ (some might consider a long position in JNUG if they seek leverage) would be justified from the risk to reward point of view.
I will consider this position to be opened automatically without an extra Alert from me.
I think that this rebound would last for about 1-2 weeks and that it would take GDXJ back to about $32.
===
Finally, since a10th profitable trade in a row is such a great piece of news (and the same goes for the fact that the current short position is already profitable), here’s… Even more great news! The possibility of extending your subscription for up to three years (at least by one year) with a 20% discount from the current prices is still open.
Locking in those is a great idea not only because it’s the perfect time to be ready for what’s next in the precious metals market but also because the inflation might persist longer than expected, and prices of everything (including our subscriptions) are going to go up in the future as well. Please reach out to our support – they will be happy to assist you and make sure that your subscription days are properly extended at those promotional terms. So, for how many years would you like to lock-in your subscription?
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: $28.12; stop-loss: 33.31.
Alternatively, if one seeks leverage, we’re providing the binding profit-take levels for the JDST (2x leveraged). The binding exit level for the JDST: $10.74; stop-loss for the JDST: $7.70.
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 exit price: $20.22 (stop-loss: $22.42)
SLV exit price: $18.62 (stop-loss: $20.51)
ZSL exit price: $24.98 (stop-loss: $21.10)
Gold futures downside exit price: $1,812 (stop-loss: $1,902)
Spot gold downside exit price: $1,792 (stop-loss: $1,882)
HGD.TO – alternative (Canadian) 2x inverse leveraged gold stocks ETF – the exit price: $9.26 (stop-loss: $6.64)
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the exit price: none – the profit-take level was already reached for this trade.
///
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.
===
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
