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.
Yesterday’s FOMC and the following press conference were groundbreaking. Rates stayed, but Fed said about raising them twice this year = no U-turn!
This is a game-changer because so many investors were still believing in a quick, dovish U-turn. And those dreams were just dispelled. The fact that rates were not hiked yesterday doesn’t matter as much as the fact that their expected future path is still to the upside.
While the core CPI didn’t move recently, inflation is moving down. With inflation moving down and interest rates going higher, what does that imply?
Much higher real interest rates!
And this is one of the two key fundamental drivers for gold prices. The other is the USD Index, and yesterday’s FOMC was a game-changer for its short-term trend as well.
The USD Index Soars on FOMC
All intraday breakdowns below the flag pattern were quickly invalidated. And given the Jun. 14 reversal, the odds are that the correction is over.
The invalidation of the move below the 50% Fibonacci retracement suggests the same thing.
This means that gold price now has not one but two headwinds.
And boy, did the gold price react!
Gold was initially hesitating to decline, which is normal, given that the investment public didn’t necessarily fully grasp the implications of what just happened yesterday, and it might be starting to realize it fully only in the following days.
Gold overnight trading, however, showed where the next move is going to take the yellow metal – lower.
It’s currently trading at new June lows, but it seems that we’ll see a move below May lows any day (or hour) now.
Silver price is down significantly, but most importantly, it just moved below its rising support lines. The next big decline is likely underway.
And junior miners?
Junior Mining Stocks Already Broke Lower
Even though it might not be clear on the above chart, the fact is that junior miners closed the day below their rising red support line. This is a breakdown that didn’t happen in May, so the situation is now more bearish than it was back then.
Let’s keep in mind that it was before gold’s overnight decline! This means that junior miners are likely to catch up with gold by sliding more. This will likely cause the breakdown to be verified and lead to a bigger decline in the following days.
The next short-term stop is at about the $33 level, as that’s where we have the 61.8% Fibonacci retracement and 2023 low (so far).
In fact, please take a look at what the GDXJ is doing in today’s London trading.
The GDXJ just briefly moved below its May lows, indicating what comes next. It might need the U.S. trading hours to break below this level, though.
And given that the investment public is just starting to realize what the implications of yesterday’s FOMC were (after they read reports prepared by professionals), the odds are that the decline in the GDXJ will continue – and accelerate.
Please note that you knew about the upcoming decline in advance – well before the FOMC, based on technical analysis, relative valuations, and other things that I’ve been describing recently.
I saved the best for the last part.
In my analysis yesterday, I focused on the stocks and why they are not as bullish or invincible as many claim.
The rally stopped, and the S&P 500 futures are down in the pre-market trading. This – plus the fact that the investment public is likely to still digest what just happened – implies that the momentum is gone. And with the momentum gone, rising rates, and RSI at extremely overbought levels, there is one very likely action that stocks are going to take.
Slide.
Please remember that junior miners broke below their rising support line even without the stocks’ help. But as soon as they get it, they are likely to truly tumble.
Meanwhile, the corrective rally in the FCX is bigger than what I originally expected, but the odds are that it’s either over or about to be over.
FCX moved higher this week, likely due to a dovish move in China, but it’s unlikely that this move will change the long-term downtrend.
However, what was likely to happen based on that piece of news, probably already happened. Yesterday’s session took the form of a black candlestick, which on the above chart means that the stock opened at much higher price, then declined on an intraday basis, but still ended the day higher than the previous day’s close. So, it’s a day when the price moved higher in closing price terms despite declining on an intraday basis – due to much higher open.
Now, these candlesticks are something that we usually (four out of four recent cases) see before declines. Consequently, the rally is likely over or about to be over. My comments on FCX’s medium-term chart remain up-to-date:
This is the second corrective upswing within the decline that started in early 2023, but that is a part of a broader downswing that started in 2022.
Interestingly, the entire 2022-now performance could be viewed as the right should of a head and shoulders formation, so something symmetrical to the left shoulder that was created by the 2021 upswing and correction. The recent move higher doesn’t invalidate the symmetry of the pattern, so it has a very good chance of forming.
Now, on a very short-term basis, FCX might have topped here, or it might move to its next Fibonacci retracement, which coincides with the declining resistance line. If this level is reached (a bit below $42), it will very likely mark the top. This might be a good moment for one to add to their short positions in the FCX.
And just as the stock market is likely headed much lower – not just the U.S. stock market, but in particular world stocks, the demand for copper and the value of shares of its producers (like FCX) is likely to decline.
Therefore, the very bearish outlook for both: GDXJ and FCX remains intact.
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
