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 price has been falling in today’s pre-market trading, but… Given the recent (HUGE!) weekly reversal, does it really surprise anyone?
Well, it might surprise those that easily forget what happened in the previous weeks and focus on just the day-to-day price swings, but the truth is that the context provided by previous weeks, months, and years (and the performance of other markets!) matters a lot.
I previously wrote about some details coming from the broader perspective and some from the immediate-term analysis, and all that remains true. The recent weekly reversal was so huge that its impact on the next weeks really needs to be kept in mind at all times. It’s not likely that a daily price moves in any direction (especially that gold is lower today…) would invalidate the implications of the powerful weekly (!) reversal.
In case that massive reversal seems like a distant memory, here’s a reminder of what happened.
Gold soared above $2,100 only to plunge to almost $2,000, and in happened on huge volume. This was the most profound weekly reversal in years. It was similar to the reversal that we saw in May 2023 and the one from March 2022, and they both started big declines.
The same is likely this time.
This means that this and last week’s moves higher were just a small rebound before the decline’s continuation.
This is particularly likely given the fact that both previous weekly reversals were followed by some kind of bounce before the decline really picked up pace. In 2022, it took several weeks before the second (lower) top formed, and in May 2023, the corrective upswing was over within a week. Right now, we’re 1.5 weeks after the reversal, which means that the decline could start any day now.
Also, please note that in 2022, gold corrected over 50% of the initial decline before finishing the rebound, and in May 2023, gold corrected slightly over 61.8% of the initial decline before moving south. This means that the size of the rally that we just saw is nothing extraordinary. In particular, it doesn’t mean that gold rallied so much that it invalidates the immensely bearish implications of the recent weekly reversal.
On a very short-term basis – the intraday basis – we see that silver just outperformed gold, which very often precedes sizable declines.
This means that the bearish indications come not just from the long-term charts but also from the very short-term ones.
- What about the junior mining stocks? Didn’t they rally too much recently to still be considered bearish?
No.
Please take a look at the areas that I marked with red rectangles. They mark important tops in the GDXJ ETF. In those cases, junior miners topped by first declining somewhat, then correcting, and then sliding without looking back. In two out of three cases, the second (final) top was below the initial one, and in the remaining case (in early 2022), the second (final) top, was slightly higher than the initial one.
So, is seeing the GDXJ close to the previous top (but still below it) a bullish game-changer? Absolutely not.
It’s not even a game-changer when we zoom in.
The junior mining stocks simply moved to the upper border of its rising trend channel without breaking above it.
The previous highs provide resistance, so it’s unlikely – especially given gold’s weekly reversal! – that a really big and sustainable rally would materialize here.
Especially given what’s happening in the USD Index.
And what’s happening there is that we saw a comeback above the 61.8% Fibonacci retracement level based on this year’s rally. This serves as the final confirmation that the bottom is indeed in.
The RSI at 30 indicated it, but the breakdown’s invalidation confirms it. This bullish outlook (which is bearish for the precious metals market) is also confirmed by the USD Index’s long-term chart, but I already wrote about it yesterday, so I don’t want to repeat myself here.
Now, before summarizing, I’d like to touch on two markets that also provide extra context for the precious metals market: stocks and crude oil.
As you know, I’m commenting on the stock market every now and then, but I’m not providing trading indications for it specifically because that’s not the area where I have the greatest experience. That’s why I’m using stock market charts and USDX charts not for trading those assets but as supportive indications of the main analysis that I’m conducting on the precious metals and mining stock charts. There are others, for example, Paul Rejczak, who specialize in this (stock market) area.
Paul opened his long positions on Feb. 27, 2023 (with S&P 500 below 4,000) and is now considering closing them. I also think that stocks are extremely overbought here and, thus, likely to decline shortly, especially since they just approached their previous all-time high.
A decline in stocks is likely to trigger a decline also in junior mining stocks – that’s the part of the precious metals market that is most linked with the performance of stocks. By the way, the fact that junior miners were weak relative to gold over the medium term despite the stock market’s strong performance is simply another indication that the miners don’t want to move higher, and that the recent rallies were simply counter-trend rallies, nothing more.
The rest of the precious metals market is likely to decline along with stocks, too (like they all declined in 2020, for example), but junior miners are likely to be affected to the greatest extent.
The above doesn’t mean that all stocks would be likely to decline, though. This is the case as far as copper stocks are concerned, for example, but the situation in oil stocks is a bit different. They have their own specific technical set-up that could take them higher regardless of stock market’s decline – Anna described it in advance in late November in her Oil Trading Alert.
So, yes, while I continue to think that the biggest trading opportunity is still in junior mining stocks, naturally, there are also other opportunities out there.
All in all, the outlook for the precious metals market remains strongly bearish and the potential for our current trading positions in junior mining stocks remains enormous.
Please note that if you’d like to stay up-to-date with the situation in stocks, crude oil and oil stocks in addition to being updated on the key events in the precious metals and mining stocks, we just launched a Diamond Package, which includes access to Gold Trading Alerts, Stock Trading Alerts (by Paul), and Oil Trading Alerts (by Anna), and this prestigious package is not only available at a price that’s more convenient compared to those three services purchased separately, but we currently have a special promotion that allows for purchasing access to it with a 10% discount (applies also to yearly subscriptions where it provides greatest savings). I encourage you to upgrade your subscription and go Diamond – enter DIAMOND10 as a discount code for the above-mentioned discount. If you have any questions about upgrading, please contact our support.
And yes, the roadmap that I presented for the GDXJ previously, remains up-to-date:
The markets usually don’t move up or down in a straight line, so some kind of correction is likely to take place in the future, anyway. The question is from what price levels.
My best candidate for the first correction (based on the data that I have available right now) is The $30.5 - $32 range, which is based on the previous lows. I don’t expect a huge rally from those levels, though. Perhaps a move from $30.5 to $32, and then the decline would continue.
The next target is more important. After breaking to new 2023 lows, the move to the 2022 low (close to $26) becomes a good possibility – I marked this area with a green ellipse.
Once this level is reached, I then expect the GDXJ to correct in a more visible manner. After all, at that point, it will be after important breakdowns:
- Below the rising blue support line
- Below the previous 2023 low
- Below the green support line
Consequently, a verification of those breakdowns by a move back to them, would be quite normal. This means a move back to $29 - $30. Then, after a successful verification of those breakdowns, I’d expect the GDXJ to slide lower – to the 2020 low or close to them – at about $20.
There’s also a good possibility of seeing a bottom at about $22, as that’s where we have a downside target based on the head-and-shoulders pattern that is most likely being formed right now. It could also be the case that the GDXJ slides to about $20 on an intraday basis only to recover and close the day at about $22. In a way, both targets would be reached in this case.
There are many IFs around the above-mentioned scenario, and the situation might (and it probably will) change as we go. Remaining open-minded and flexible regarding the new information is key, but having a roadmap is very useful, too, as it shows how things could develop on a more-or-less basis. This can help you prepare for those – or similar – price moves.
Again, as always, I’ll keep you – my subscribers – updated.
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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 recent weekly reversal in gold continues to play an enormously bearish role in the outlook for the precious metals market, and since the situation in junior miners is similar to what we saw at previous tops, it seems that the decline could continue at any day now.
The Fed’s surprisingly dovish remarks triggered emotional buying but it’s unlikely that this rally will last.
The situation in the USD Index and on the stock market is likely to contribute to the fall in the prices of junior miners as well.
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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
