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.
What a beautiful nothing! Nothing really happened on the markets on Friday, but due to the context of the previous days’ actions, it was profound.
The thing is that it was a day when markets took a breather and verified their previous moves.
Some price moves are accidental or triggered by geopolitical events. Sometimes, the markets pretty much “have to” move in a certain direction because the only rational thing to do is given the event that is happening. For instance, if a war breaks out in Europe, gold rallies. But it doesn’t mean that it’s going to stay up for long. If the rally was simply reactive and not based on a broader trend, then the rally is going to be invalidated.
That’s why verifications of breakouts and breakdowns are so important. That’s one of the ways to tell if a given price move was temporary or “do the markets really mean it”.
What (not) happened on Friday tells us that the markets really mean what they did recently. Let’s take a closer look, starting with junior mining stocks.
Can you see the comeback above the rising support line?
No, you can’t because the GDXJ had simply moved close to this line, and then it declined once again, ending the session pretty much unchanged.
Zooming in allows us to see that junior miners also tried to close the week back above the late-August low.
That didn’t happen, and the move below this low was just confirmed – even in terms of weekly closing prices.
Here’s how it looks if we zoom in. The attempt to move higher was sharp, but it didn’t change anything. The breakdown was confirmed, and the implications are very bearish.
One could say that this was accidental and that junior miners – as just one market – don’t mean that much. That might have been the truth if it wasn’t for the fact that…
We saw the same kind of action in gold, silver, USD Index, and the S&P 500 index. So not only in key parts of the precious metals sector but also in the case of its key drivers. This means that our profitable position in junior mining stocks is likely to become much more profitable and that my comments from Thursday remain up-to-date:
“Interestingly, from the daily point of view (the above chart is based on the daily candlesticks), we saw a verification of the move below the rising blue support line. The GDXJ moved back to this line and then it declined once again.
This means that it’s now ready to move lower. Probably MUCH lower. Once junior miners move below their 2023 lows – and that move seems to be just around the corner – they are likely to truly plunge.
There is no significant support all the way down to the $26 - $28 area. Just as the move up from those levels was fast, the same is likely to be the case for the move lower.
The difficult part of making money on this move lower might be not to get out too early. People have tendency to let losing positions grow, while cutting the winners too early. Please keep the above note about support levels in mind, as the GDXJ slides to new yearly lows. It’s really likely to slide substantially before correcting in a meaningful manner.”
Gold price moved up and then down, just like miners did.
Gold closed the week below the rising red support line, and it seems to have formed a small head and shoulders pattern (marked with orange).
The sell signal from the Stochastic indicator (lower part of the chart) remains in place.
In other words, nothing bullish happened on Friday, and the intraday reversal was bearish. This brief gold price analysis points to lower gold prices in the following weeks.
Silver price also formed an intraday reversal, and it even closed the day in the red.
Most importantly, though, silver closed the week below its rising support lines, which spells trouble for the following weeks.
This is in perfect tune with the bullish situation present in the USD Index.
The USD Index is negatively correlated with the precious metals sector, so the bullish verification that we just saw in the USDX is a bearish factor for gold, silver, and miners.
The bullish verification arrived as yet another daily close and weekly close above the May-June highs.
Yes, the RSI is overbought, but if the medium-term trend is very strong, the USDX can rally as the RSI based on it becomes even more overbought. I marked two cases when that happened with red vertical lines: Nov. 2021 and Apr. 2022.
Stocks also took a breather on Friday, and their very short-term trend remains down. Once we see a breakdown below 4,350, another bigger slide is about to take place due to the head-and-shoulders pattern that will have formed at that time.
The target based on the above-mentioned H&S pattern would be at about 4,100, which is well below the rising, medium-term support line. It could be the case that we’ll see a quick move lower, below the support line, and then another move back up to the rising support line, which would then be verified as resistance. In other words, we could see a slide to about 4,100, then a rally to about 4,250, and then another sizable decline.
Of course, that’s just one of the possibilities, and whether the situation develops exactly like that doesn’t even matter that much because stocks are so overvalued compared to their fundamental situation (the interest rates are after a series of hikes, remember?) that they are likely to slide in one way or another. And they are likely to put enormous bearish pressure on the prices of mining stocks (especially junior mining stocks) – perhaps even similar to what we saw in 2008 when the carnage unfolded.
What does it all mean? It means that the precious metals market is likely to slide, quite likely profoundly so, and junior mining stocks’ prices are likely to truly slide. While I can’t promise any specific rate of return, it seems to me that the profits on this decline are going to become astronomical.
On a final note, if you’ve recently participated in the RISE (Regain Inner Strength Exercise) session (either one) or were considering it, I would like to ask for your feedback. We got great results in terms of increasing overall well-being during both sessions, but perhaps there’s a way to do it even better (or to do something else instead). Please let us know over here.
===
If you’d like to participate in my Mastering Multidimensional Wealth | 1:1 Coaching Experience (perhaps by re-investing some of your profits into yourself) or become a partner/investor in Golden Meadow, you’ll find more details in the above links.
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 it seems that the corrective upswing is already over, and the profits on our current short position are going to increase. We just caught the 10th profitable trade in a row – congratulations. The outlook for the short positions in junior miners and in the FCX remains very favorable.
===
On a final note, if you’ve recently participated in the RISE (Regain Inner Strength Exercise) session (either one) or were considering it, I would like to ask for your feedback. We got great results in terms of increasing the overall wellbeing during both sessions, but perhaps there’s a way to do it even better (or to do something else instead). Please let us know over here: https://forms.gle/xfxpNZj1jcD667RF6
===
Finally, since the 10th profitable trade in a row is such a great piece of news (and the same goes for the fact that the current short position is already profitable), here’s… Even more great news! The possibility to extend your subscription for up to three years (at least by one year) with a 20% discount from the current prices is still open.
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: $26.12; 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: $12.18; 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: $10.38 (stop-loss: none)
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the exit price: $18.87 (stop-loss: none)
///
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.
===
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
