I’m temporarily closing the short positions in the mining stocks, and instead, I’m opening a regular (100% of the position size) long position in gold (not in silver and not in mining stocks).

I plan to close the long position in gold, and re-open the short position in the junior mining stocks shortly – perhaps as soon as this week.

This is likely going to be a quick trade, so it might not be everyone’s cup of tea, especially that it’s against the strong medium-term downtrend. Please remember that if a given trade doesn’t suit your preferences, you definitely don’t have to enter it. In my opinion, waiting on the sidelines until we re-enter the short position in juniors, or even ignoring this message and waiting out the possible corrective upswing would also result in positive rate of return within the next couple of months. Still, it seems to me that we have a quite specific opportunity for a quick extra profit, so I’m taking advantage of it.

As I wrote previously, there were quite a few reasons to think that PMs are going to correct after the huge, sharp decline, but also a few reasons to think that they are going to continue to move lower.

Based on how today’s session is developing, many of the factors supporting the bearish case in the very near term are gone. In particular, the GDX and GDXJ ETFs moved back above their 61.8% Fibonacci retracement levels, while the USD Index moved back below its own 61.8% Fibonacci retracement. This means that the moves beyond these retracements were invalidated.

Besides, back in 2012, the corrective rally started right after we saw a single day during which gold and GDX stopped declining and moved a bit higher. They then moved higher more visibly in the following days. Well, today is the day when both moved somewhat higher, and since the session is close to being over, it seems justified to assume that today’s session will end “in the green”.

So, since it seems that we have a useful roadmap for the PMs, based on what gold did in 2012 (and – to a smaller extent – in 2008), it would be a waste not to take advantage of it, especially that the price patterns have been remarkably similar recently.

Again, that’s the regular position size (not a large one) for a long position in gold. I’m not using a stop-loss order here, but I’m watching the market closely, and I’m not going to wait for long if the trade goes against me. If you want to use a leveraged ETF for this trade (which is not recommended to most people), you might be interested in the UGL ETF.

As always, we’ll keep you - our subscribers - informed.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief