Gold just jumped, and I thought that you’d appreciate and update, especially that I mentioned that we might see a bigger – and tradable – upswing in gold.

In short, it does NOT look like a favorable opportunity to exit short positions and/or go long in the precious metals sector.

Technically, while gold moved higher today, it did so after rather perplexing news hit the market, so it was easy for investors to act emotionally. And since gold was just after a big decline, emotional / technical reaction could be to just correct part of the decline. It doesn’t – automatically – mean that the rally is something bigger.

I already commented on silver’s pre-market performance in today’s regular Gold Trading Alert, but mining stocks’ performance adds another level of reliability to the above statement.

The reason is that miners are NOT following gold higher to any reasonable extent.

The GDXJ is up by mere 0.76%. It did move higher initially, but it already moved back down.

Miners’ weak performance relative to gold is a bearish sign – not a bullish one.

So, if anything can be said about today’s session as far as the precious metals sector is concerned, it’s that it provided us with yet another bearish confirmation.

Also, do you recall the hourly GDXJ chart from today’s analysis? I wrote that we might see a small correction here as that’s what used to happen at those levels. What we saw today was a bit bigger than what used to happen at those levels, but given gold’s $20+ intraday rally, it’s normal. The point here is that what bullish could have happened based on this support zone, has probably already happened, and the downtrend can resume shortly.

Powell just spoke about rates and he said very little new. They (the Fed) will make the interest rate decisions on a meeting-by-meeting basis depending on the data. That’s what they already said before, so it changes nothing – also with regard to the fact that the markets are most likely overestimating the odds for the rate decreases in the coming months. But I already wrote a lot about it this week, so I don’t want to go into details once again.

What I would like to comment on is the debt-ceiling debate. The debt limit talks came to an abrupt standstill. The Republican House Speaker said it's time to “pause” negotiations.

What does it change?

Absolutely nothing.

They will practically certainly (I’d give it 100% chance, but since there are no certainties on any market, I’m not saying that it’s certain) increase the debt limit, because nobody will want to be the person responsible for the U.S. default. Especially given the war in Europe, and tensions regarding China. Can the U.S. afford to be viewed as weak now? Come on…

Then again, they can’t just state the obvious and say “you know, we really have no way out of this debt spiral and when we do try to implement something, it will already be after you have already suffered losses from your stock investments that will be so huge, that you’ll accept just about any solution”. That would be a form of weakness, too, right?

So, no. I can’t happen like that.

Consequently, instead, we have smoke and mirrors. A dance. A fake argument. Nothing more. And nothing that impacts our positions as whatever the market does based on the fake disagreements, will be undone once it’s clear that the debt ceiling will indeed be raised.

Therefore, the outlook for the precious metals sector remains bearish for the following months and weeks. The profits from our short position in the FCX (entered in early April) will likely soon be joined by profits from the short position in the GDXJ.

There might be an opportunity to go long soon (perhaps as early as this month), but today is not a day where that move would be justified from the risk to reward point of view – at least in my view.

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

Thank you.

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