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.
Friday’s action together with today’s pre-market action together paint a perfect confirmation of what I wrote in my previous analysis.
Namely, it is highly likely that it’s been the investment public’s purchases that pushed various assets’ prices higher in the recent days.
I discussed this in greater detail on Friday (March 24th), and I even featured the GME chart as a confirmation, and all those comments remain up-to-date, so today’s analysis will be rather brief, and I will focus on the most recent price changes.
The GDXJ ended Friday’s session a mere $0.20 higher, and just a few cents above the 61.8% Fibonacci retracement level. Thanks to Friday’s and previous analyses, you knew that miners’ “strength” at this time shouldn’t be taken at its face value. And indeed, it’s highly likely that it’s a bull trap – a mirror image to what we saw at the beginning of 2016 before a sharp rally.
It’s a tiny breakout, and an unconfirmed one. The odds are that it won’t be confirmed due to two reasons:
- The GDXJ is already down in today’s London trading.
- Gold and silver are down in today’s pre-market trading. Gold invalidated the move above $2,000 once again.
Let’s take a closer look at the latter.
Gold was able to remain above $2,000 for just a very brief while, before invalidating the move.
And yes – silver showed very short-term strength once again. As you can see above, gold’s second attempt was accompanied by a much more profound intraday move higher in the white metal. As a reminder – silver’s very short-term outperformance of gold is a bearish indication.
The above indicates that the tiny breakout above the 61.8% Fibonacci retracement in the GDXJ is about to be invalidated (probably today).
Also, did anyone miss the HUGE, CLEAR, WEEKLY REVERSAL IN THE USD INDEX?
Weekly candlesticks are much more important than daily ones, as they have implications for the following weeks, not just months.
Last week’s “hammer reversal candlestick” implies that the decline is over and that the uptrend will resume shortly.
But is this a useful indication in case of the USDX?
Of course, it is!
It’s worked multiple times, and you can see two of them on the above chart. One time was in late January 2023 – that was what started the previous upswing in the USDX – the one which corresponded to this year’s biggest decline in gold.
The other time when we saw something like that was in early August 2022. What happened next? The USD Index soared by over 8 index points! The gold price tumbled, of course.
During both cases the price of the GDXJ fell significantly.
I KNOW that it’s frustrating to wait for a position to become profitable and that it’s nice to see it become profitable immediately. We did see this happen in the case of our previous two trades, so it might seem like something “normal”. It’s not – these were exceptionally great (not just good) trades – I mean the last long position in the GDXJ and then the short position in the FCX. Especially in case of the latter, we managed to enter the short position right before the slide accelerated and we exited right after the short-term bottom.
In the case of the current trade, things are simply… Normal. It’s normal that it takes a while to see profits build up over time. And this time, the profits that I think we’re about to reap from this trade (in my opinion, of course) are likely to be so huge that they are definitely worth to be waiting for – for an extra week or few weeks. It’s unlikely that we’ll have to wait much longer, tough.
Also, let’s keep in mind that the last profits that we took were from the sixth profitable trade in a row – a series that we started many months ago…
The investment public enters the market at the very end of the rally, and given all the technical confirmations that we saw recently, it does seem like the top is in or at hand.
If I didn’t have any position right now, I would have entered a large short position in junior miners right now.
But, I get the feeling that over the last couple of days we focused too much on the very short-term events (Fed’s interest rate hike) and price moves, while not emphasizing the really big deal enough. Here it is:
Just… Look at it. This analogy is not only clear.
It’s beautiful.
The same price levels that started it all.
The same shape of price moves.
Even the same (61.8%) Fibonacci retracement stopped both corrections!
The 2008 top and the 2021 / 2022 tops in world stocks are truly analogous, and the implications are so ridiculously bearish for the stock markets around the world that it almost hurts that it’s not being talked about more openly.
Even the RSI indicator is doing the same thing.
And the sentiment… I have good memory, and I can recall how optimistic everyone was (including myself at that time – and I’m learning from the mistakes of others as well as those that I made myself…) after the sizable correction in gold that happened in 2008.
Then gold simply plunged.
But what happened to silver and mining stocks was something out of this world.
It was a bloodbath.
And the GDXJ ETF was not even around at this time, but based on what we know about its performance, it’s near certain that it would have declined even more (!) than the GDX, HUI, and silver.
Ladies and Gentlemen, we are in the same position in world stocks with one big difference.
The starting point from which miners’ decline is likely to accelerate is much… Lower! And this is despite a higher starting price of gold.
Perhaps the reason it’s not being talked about more is because it’s so ridiculously bearish for mining stocks that it seems to make “no sense” for someone who is not familiar with technical analysis (and most journalists aren’t).
But you know about those technical details behind the scenes. You have been warned – many times now.
You are prepared.
And just as its darkest before the dawn, it “seems most bullish” right before the biggest slides.
Stay strong.
Overview of the Upcoming Part of the Decline
- It seems that we’re seeing another – and probably final – corrective upswing in gold, which is likely to be less visible in the case of silver and mining stocks.
- 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 – perhaps with gold prices close to $1,500 - $1,550.
- 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, we recently took profits from the additional FCX trade (right before the trend reversed!) and the current short position in junior mining stocks is – in my view – poised to become very profitable in the following weeks, and perhaps days.
Things might appear chaotic in the precious metals market right now, but based on the analogy to the previous crises (2020 and 2008), it’s clear that gold, miners, and other markets are pretty much doing the same thing all over again.
The implications of this “all over” are extremely bearish for junior mining stocks. Back in 2008, at a similar juncture, GDXJ’s price was about to be cut in half in about a week! In my opinion, while the decline might not be as sharp this time, it’s likely to be enormous anyway and very, very, very profitable.
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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: $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)
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.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
