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 tide appears to have turned, just as it did at the crucial moment in 2008. And just like it was the case back then, it seems that most people missed it.
The thing is that people are usually concerned with very short-term news and price moves:
Gold rallied by $X, yesterday!
Rates were just hiked by x%!
And so on…
In reality, these events are just triggers for events that are unfolding in tune with long-term trends and analogies. Some of those triggers make perfect sense, and some don’t, as markets can act in the “buy-the-rumor-sell-the-fact” mode, thus greatly perplexing those who expect the market moves to always be in tune with the news that was just announced.
Boy, were those folks surprised when the rates were cut by 0.75% back in 2008 and the stock market still plunged!
There are myriads of such examples, and examining them leads to one major takeaway. Even though it might seem exciting and very important to focus on those immediate-term events, it is actually the analysis of trends, technicals, and analogies to previous situations that actually brings useful insights that can then help one make profitable trades. Of course, no technique is perfect, and nobody, including yours truly, can guarantee any kind of performance, but based on two decades of my experience in the precious metals market, I see how useful this is, especially compared to any attempts to guess what the next “unexpected news” is going to be (hint: even if it happens as one had thought, it sometimes has a different effect than one had expected).
When forecasting gold prices, it’s no different. Focusing on the big picture comes first, and spotting analogies to what has already happened is second. Trying to guesstimate what’s about to take place in the news is much further down the list.
The space here is limited (and so is everyone’s time), so to make a long story short, the big picture for gold is not as bullish as it might seem based on its most recent move above $2,000. No. Gold is barely above its 2011 high in nominal terms (not to mention real terms), despite loads of dollars being printed in the meantime and even despite the war outbreak in Europe.
Silver and mining stocks are much below their 2011 highs – in fact, mining stocks are even well above their 2008 highs in many cases.
This doesn’t show the strength of the market, but rather its weakness.
As far as analogies to the previous cases go, gold, silver, and mining stocks appear to be repeating their performances from previous periods, and the most important of the analogies seems to be the one to what happened in 2008.
The reason is that it’s not only visible from a technical point of view, and it’s not only visible across many markets, but actually some of the fundamental news surrounding the price moves are similar.
Starting with the latter, the rates are moving up, and that was also what preceded the 2008 slide (not directly, but still). And do you remember the Lehman collapse that was one of the first dominoes to fall? This time, it was the Silicon Valley Bank.
Ultimately, in the aftermath of all this, both gold and silver prices plunged profoundly, but there was a huge counter-trend rally first.
What did gold do back then? It soared for about a week, then traded sideways before finally topping slightly higher than it did initially.
While gold soared, the USD Index declined on a short-term basis, the mining stocks moved higher, but overall they followed the general stock market, and… There was a sharp upswing in crude oil prices (as seen on the bottom of the above chart), even though it’s been in a medium-term downtrend.
It all happened recently, too. Even the sharp upswing in crude oil!
The price of black gold just jumped, despite being in a medium-term downtrend.
Stock prices are currently moving sideways on a medium-term basis, but their most recent move was to the upside.
It currently looks like the right shoulder of the head-and-shoulders formation is being formed. The RSI reading shows similarity to what happened in mid-2022, and then a massive decline followed. Of course, not two periods are identical, but they are similar enough for the implications to be bearish at this time.
This is especially the case given that the volume has been visibly decreasing during the current upswing – exactly like it was in mid-2022.
Consequently, the current short-term forecast for stock prices is bearish.
This means that the implications for mining stocks are also bearish, since those two markets (mining stocks are stocks, after all!) are connected – and this is the case just like it was back in 2008.
The USD Index appears to have just finished its short-term decline, which is a correction within a bigger uptrend.
Again, that’s something that we’ve seen in 2008. Back then, the move lower in the USD Index took less time, but let’s keep in mind that history tends to rhyme rather than repeat itself to the letter.
There’s a specific pattern present on the USD Index that affects quite many forex forecasts (not surprising given the USD Index is ultimately a weighted average of forex pairs).
Namely, the U.S. currency tends to reverse directions close to the turn of the month. That’s what I marked with dashed lines on the above chart. It seems that this technique worked once again, and a local bottom was formed.
Zooming in allows us to see that the USD Index actually managed not only to break above its declining resistance line but also verify this breakout and then rally once again.
This – combined with the above-mentioned monthly seasonal tendency – makes it very likely that the bottom is in for the USD Index.
Given the negative correlation between gold and the USD Index, it seems that the top in gold is in as well.
Let’s take a look at the gold price itself.
After a sharp rally – that lasted about a week (just like in 2008!) – gold price started to move sideways, and recently it moved to a new intraday high.
Unless one is aware of the bearish analogy to 2008, the above might seem bullish, but given the carnage that followed in 2008, gold’s recent behavior is not bullish at all. It’s bearish.
The fact that gold just moved back below $2,000 on an intraday basis only adds to the bearish implications of the recent price movement.
What does it all mean?
It means that despite a positive movement in gold in the last several weeks, gold price analysis actually suggests that a very bearish surprise awaits those, who are taking the price moves at face value.
What about the junior mining stocks?
Well, I previously warned that we might get some sort of final run-up early this week, and that’s what appears to be taking place in today’s early trading.
The lines creating the rising wedge have crossed, and that likely marked an important short-term reversal point (that’s simply how things tend to work very often – also on the precious metals market). However, since those points tend to work on a near-to basis, it’s quite normal for the actual top to be taking place a bit later – for example, today.
Please note that the GDXJ already invalidated its breakout above its previous 2023 high, and in today’s early trading it’s making yet another attempt to break above those highs.
Just as the previous attempt failed, this one is likely to fail, too, especially given the triangle-vertex-based reversal point.
Yes, I would very much prefer for the junior mining stock sector to move lower already, just as you would. And I know that waiting for the decline is unpleasant, boring, and discouraging. Fortunately, it seems that the prolonged waiting is over or about to be over. The patience (and doing what is difficult) is likely to be very well rewarded. There doesn’t have to be any specific fundamental or news-based trigger for the medium-term decline to continue. Seeing one, would speed things up, but it’s not necessary.
Stay strong.
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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
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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. The same goes for the additional short position in the FCX.
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, GDX’s price was about to be cut in half in about a month! 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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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!
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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.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
