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 month is over. The week is over. Some things changed, some things didn’t. What can one predict for gold price in July 2023?
Let’s start with the gold price’s monthly chart.
While it might appear that not much happened in gold last month, in reality, it declined by over $50 – and that’s no small feat.
What’s important about this move lower is that it pushed gold (temporarily, but still) back below its 2011 high. Think about it… Pandemic, lockdowns, a war in Europe, and ridiculous amounts of money that were printed in the last twelve years, and gold hasn’t really moved higher – in nominal terms. In real terms (adjusted for inflation), the gold price in July 2023 is much lower than it was at its 2011 high.
Silver price is much lower than it was at its 2011 high, and the same goes for mining stocks. This shows just how weak the precious metals market really is – in general.
To be more specific, the June 2023 decline in gold was important because its pace was in perfect tune with what we saw in 2012 and in 2008 when gold declined. Based on rising interest rates, it seems that we might see a repeat of 2008 based on fundamental reasons, but the technicals are here to support it too.
The extreme underperformance of gold stocks relative to the price of gold indicates that we’re about to see much lower gold price values, and this major indication points to a similarity between now and 2012 when gold miners were underperforming gold price to a significant extent as well.
Let’s zoom in a bit.
Predicting Gold Price Based on Weekly Price Moves
The above chart features gold price changes in weekly terms. At first sight, you might think that this chart has bullish implications due to the fact that gold was able to reverse last week’s early decline and closed it practically flat – thus forming a hammer reversal candlestick.
However, it’s important to note that the very same thing happened at very similar price levels last year. And it was also after the gold price’s unsuccessful attempt to break – and hold – above the $2,000 level. Just as I warned on both occasions – the gold price failed to hold above that level and declined in tune with my expectations.
At that time, this supposed “reversal” was followed by another 2+ weeks of declines before we saw a meaningful corrective upswing (after which gold continued to decline, anyway).
So, is gold price’s last week’s action bullish? Not really. As I already stated earlier today, the gold price is falling in tune with how it declined back in 2008 and 2012. Consequently, forecasting higher gold prices here – based on just gold’s weekly performance – might be misleading.
Stocks’ Rally and Its Implications for Gold Price Outlook
Stocks soared profoundly on Friday, even though not much happened on that day. This happened right before the start of the long weekend in the U.S., which seems suspicious.
It will likely be impossible to prove it, but it’s quite possible that large investors (perhaps institutional ones) used this opportunity to take advantage of those that are not long to pay attention to the market or are unable to execute trades early this week.
A rally often makes unsophisticated investors bullish (incorrectly so – a rally can be bullish, neutral or bearish, it all depends on the context!) and makes them “join the party”. If a bigger entity knew that the markets were about to turn south, then they might be tempted to artificially pump the price higher to lure those investors into entering long positions in order to then “pull the plug” on the futures market while those investors can’t exit their positions as the markets are closed.
I’m not saying that it definitely happened on Friday, but it might have. So far, stock futures are flat in today’s trading, but the “big surprise” might await investors tomorrow.
Since stocks are such a large market in general, this might have been the reason behind gold’s and gold miners’ upswing on Friday and in today’s early trading.
Now, if the move higher in stocks was artificial, then it’s also possible that it was the same with the move higher in the gold price, silver price, and the prices of mining stocks.
And if so, then making bullish predictions based on what happened on Friday is not the best idea.
On Friday, the GDXJ ETF (a proxy for mining stocks) moved back up – probably verifying the breakdown below its May lows once again.
During today’s session, the GDXJ moved slightly above $36 and then moved back below it – and below the lowest daily close of May. This means that the resistance provided by this level is held. This is not a bullish game-changer.
We’re quite likely to have a bigger rebound in gold, silver, and mining stocks as no market can fall without periodic corrections, but what we see right now probably isn’t it – it’s just a small and perhaps very brief pause.
In fact, please note that we saw something very similar at the same price levels last year – I marked that situation with a blue ellipse. And just like the decline continued shortly thereafter then, we’re likely to see another side shortly. A rebound – and quite possibly a buying opportunity might be near (as well as the opportunity to take profits from short positions in the GDXJ) – but it doesn’t seem that they are already here.
All in all, the gold price for July 2023 (and the same goes for silver and mining stocks) remains bearish, at least for the initial part of the month. We might see a rebound as early as this (or next) week, though.
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. 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 – 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.
Some might consider adding to the short position in the FCX.
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
