Briefly: in our opinion, full (300% of the regular position size) speculative short positions in junior mining stocks (GDXJ) 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.
Gold didn’t just invalidate the move above $2,000. It moved even lower – that’s how we know the invalidation is real. And so are its consequences.
After gold’s suspicious rally, we see a very real decline. And the decline in silver and mining stocks is even bigger. Still, let’s start today’s analysis with the yellow precious metal.
Yesterday’s move lower by $6.80 might not seem significant but given the fact that the gold price tried to move above $2,000, this is really important. It’s simply not happening even though the situation in the Middle East is escalating.
Gold was likely to top with RSI close to 70 and about 1-2 weeks after the peak interest in “war” in Google News. That’s exactly where we are right now.
The interest peaked, gold made another attempt to move higher, and this is in perfect tune with what happened after the Russian invasion back in 2022.
Back then, that was the final top for the year, even though the conflict got uglier and uglier.
The same appears to be happening right now. The situation in the world might be getting worse, but markets move much more on emotions and sentiment than they do on real events, news, and logic. Of course, the latter influences the former, but it is the former – the emotional part is the key.
All in all, the current prediction for gold prices is bearish.
Also, while on the above chart, you can see that gold moved relatively close to its all-time highs and well above its early-2020 highs, we can’t say the same thing about silver or mining stocks.
To be clear, what you see on the above chart are not even all-time highs for silver or junior miners, but the dramatic underperformance and weakness of both is crystal-clear.
Silver is somewhat above its early-2020 high but well below its mid-2020 high, and closer to the latter.
The GDXJ ETF is well below both above-mentioned highs – it’s actually trading close to the early-2023 lows… Making our current positions in it profitable.
Yes, this is extreme underperformance. And you know when we saw this kind of weakness? In 2013 and 2008, right before and during the early parts of the huge price declines.
THIS is the moment to be prepared – after the precious metals market declines significantly, a lot of gains on this move lower will already be over. Being prepared now is what your future self will likely thank you.
Mining stocks moved slightly higher, and this might have raised a few eyebrows. After all, miners were strong relative to gold, right? That’s supposed to be bullish…
In general, yes, but not in each case. One exception is if the general stock market was particularly strong on a given day – in this case, it was.
After bottoming at my previous target price, and with RSI at about 30, stocks launched a rally. Is the rally over? That’s quite possible but not 100% certain.
It doesn’t really matter, though. Gold is likely to slide, and miners were able to simply remain more or less flat despite the daily rally in stocks.
And since stocks are likely to turn south any day now, the implications for the precious metals market remain bearish. In other words, the profits from our short positions in the GDXJ are likely to increase further.
The USD Index continues to support lower precious metals prices as well, as it’s likely to rally in the near future.
The U.S. currency is behaving similarly to what it did in mid-2022, right before it moved to its 50-day moving average when the RSI moved temporarily below 50 (marked with green arrows).
Back then, there was some back-and-forth trading before the USDX soared once again, and we just saw the same thing recently. As the similarity remains intact, the implications remain bullish. And as the correlation between the USDX and the precious metals sector is negative, the above has bearish implications for gold, silver, and mining stocks.
Let’s not forget that even though the recent rally in the USDX might seem “too big”, the reality is that when the U.S. currency moved higher from similar levels about 20 years ago, it rallied much more during the short-term upswings. So, the potential for growth in the near term is still here.
Also, let’s not lose sight of the forest while looking at the trees.
The above chart features the Toronto Stock Exchange Venture Index, which serves as a long-term proxy for junior miners, as so many of them are listed in that index. The TSXV is not something covered frequently by most gold experts, and in my view – incorrectly so.
The thing is that this index not only broke below its long-term support line but also moved visibly lower, and we saw something very similar in 2008 and 2013 in the early parts of the massive declines in the mining stocks (and in the rest of the precious metals sector).
So, while the very short-term chart suggests that the mining stocks are about to move lower shortly, the long-term chart shows just how dire the situation really is.
Before summarizing, let’s take a look at the situation in copper.
In short, copper corrected a bit this week, but it didn’t change anything from the medium-term point of view.
The price of copper is after a confirmed breakdown below the head-and-shoulders pattern, which makes a move to about $3.0, very likely here.
And the fact that the FCX – a flagship copper and gold stock didn’t rally recently only adds to the bearish picture.
The FCX price is not only after a confirmed breakdown – it’s actually testing its yearly lows. Once those are taken out, FCX will be on its way to slide to the previous yearly lows (and then lower).
In other words, it seems that the profits from our short positions in junior mining stocks and in FCX will increase even more in the not-too-distant future.
As always, we’ll keep you – our subscribers – informed.
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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, and given that the fear has most likely peaked and the current technical indications point to lower precious metals prices, it seems that the profits from the current short position in the junior mining stocks are going to increase in the following days and weeks. The same goes for the profits from the short position in the FCX.
We completed 11 profitable trades in a row, and we currently have two profitable trading positions open. Congratulations!
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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: none.
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: $10.54; 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 exit price: $20.22 (stop-loss: none)
SLV exit price: $18.62 (stop-loss: none)
ZSL exit price: $24.98 (stop-loss: none)
Gold futures downside exit price: $1,812 (stop-loss: none)
Spot gold downside exit price: $1,792 (stop-loss: none)
HGD.TO – alternative (Canadian) 2x inverse leveraged gold stocks ETF – the exit price: $8.43 (stop-loss: none)
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the exit price: $19.49 (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
