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.
I’ll be honest – there’s not much going on today, at least for the precious metals market. Things are pretty interesting for stocks, though…
After Thursday’s supposedly bullish short-term reversal, there was a bearish short-term reversal on Friday, and gold futures are down in today’s pre-market trading, but not significantly so.
In other words, the post-breakdown back-and-forth movement continues. And it continues to have the same bearish implications as it used to. The markets are preparing for their next big move, and it’s extremely likely that this move is going to be to the downside.
Gold practically ignored last week’s sizable decline in the USD Index, which tells us that there’s probably nothing or very little that could make it rally from here (I’m talking about “regular” events, of course). On the other hand, given this kind of relative performance, it seems that once gold gets at least some trigger (can come from any semi-important piece of news or the USD Index’s upswing), it would be ready to slide.
For now, it’s still in the preparation mode, which makes it likely that once the decline is going to finally start, it’s going to be really significant.
What we saw in the S&P 500 on Friday is more interesting.
Namely, we saw a reversal that took place on a huge volume.
One might say that it’s not a big deal, or it’s something bullish because we saw something like that in late May, and it was right before the upswing.
However, this time, we saw the volume spike also in the Nasdaq, which we didn’t see in late May, so this time really IS different.
Could it be that stocks finally reached their peak?
Honestly, even I’m tired of writing that this is likely, but… It DOES appear to be likely.
The RSI is still at extremely oversold levels, and the index itself just reached its rising resistance line, which you can see on the chart below.
It does look like it’s high time for a turnaround. This has been the case a couple of times now, but never did we see a combination of huge volume, a resistance level being reached, a daily reversal, and an extremely overbought RSI.
Also, do you remember (I wrote about it on many occasions) what tends to happen at the end of an upswing in the stock market? The stocks that were weakest previously tend to outperform.
The reason is that the investment public buys whatever’s cheap without considering that it might be cheap for a reason. Sometimes the moves are bigger, and sometimes they are smaller, like the one that we just saw in the GDXJ.
The GDXJ moved higher on an intraday basis on Friday, but ended the session very close to its rising red support line. Was the breakdown invalidated? I wouldn’t say so, especially given today’s pre-market decline in gold.
Did juniors had some reason to move higher on Friday, even though gold didn’t? Yes, it could have been because stocks were topping.
Was Friday’s move higher a sign of strength in the precious metals sector? No, because of the above reason and because it was just one day. Considering where the GDXJ is relative to its June lows and highs and then comparing it to where the gold price is compared to its own June lows and highs tells us that miners remain weak relative to gold. And that’s bearish.
All in all, the outlook for the precious metals sector remains bearish, and it seems that the patience (which has been very difficult) will be well rewarded for those positioned to take advantage of the next big move to the downside (and those prepared to take advantage of the upcoming rebound).
PS. To clarify some confusion and misleading information that you might find “out there” (probably spread by those that are not analyzing the precious metals market but that rather cheerleading it) regarding my profitability and the kind of positions that I’m opening in my Gold Trading Alerts (both: long and short), here’s a complete (!) list of trades that I featured since 2022.
Whenever discussing profits, I mean the nominal profits based on the basic, unleveraged instrument, like GDXJ and FCX); selection of instruments is not something I’m accountable for, and each investor determines it on their own, thus I’m not responsible for using options, leveraged instruments like futures / leveraged ETFs etc., and the way it might affect the rate of return.
Yes, all eight out of eight were profitable. And while I can’t promise any kind of performance of the current positions (nor any other), in my opinion, their potential is enormous.
Here’s the complete (!) list in inverse chronological order (please click the links for the actual analyses in which I described when the profits were taken; feel free to verify hours at which it was posted and where markets were trading at those times):
1. On May 25, 2023 we took profits from the short position in the FCX (practically right at the bottom; opened on Apr. 5, 2023).
2. On Mar. 17, 2023 we took profits from the short position in the FCX (almost right at the bottom; opened on Mar. 8, 2023).
3. On Mar. 1, 2023 we took profits from the LONG position in the GDXJ (very close to the local bottom; after the “easy part” of the rally).
4. On Feb. 24, 2023 we took profits from the short position in the GDXJ (almost right at the bottom; and that’s where I wrote about the long position from point 3).
5. On Jul. 28, 2022 we took profits from the LONG position in the GDXJ (entered on Jul. 11, 2022; we were buying around and very close to the bottom).
6. On Jul. 8, 2022 we took profits from the short position in the GDXJ (very close to the bottom).
7. On May 26, 2022 we took profits from the LONG position in the GDXJ (very close to the top; just several days before the top).
8. On May 12, 2022 we took profits from the short position in the GDXJ (that was exactly the monthly low and reversal; and that’s where I wrote about the long position from point 7).
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 outlook for the precious metals sector (and for the FCX) remains to be extremely bearish and the profit potential for the current short positions in junior miners and FCX remains enormous.
While I can’t promise any kind of return (nobody can), in my opinion, the recent profitable position in the FCX will soon be joined by even more profits from the current positions in GDXJ and FCX, and the winning streak of trades that started in early 2022, will continue.
If I didn’t have a short position in junior mining stocks, I would be entering it now.
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.
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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 to of value can be created through this kind of collaboration :).
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
