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.
How can you tell that gold price and gold stocks really don’t want to rally? Easy, just focus on what gold “has to” do AND on what happens next.
Friday was the day when the nonfarm payroll statistics were released, and once again, they were below expectations. As you can see in the table (from investing.com) below, this is usually not the case.
There were only a couple of times in the recent past when the jobs report was reported below expectations. And in each case, there was a very specific follow-up in mining stocks. I marked it using the red vertical lines on the below GDXJ ETF chart.
In each previous case (since April 2022), the same thing happened after disappointing nonfarm payrolls.
On July 13, I wrote about it in the following way:
- “But PR, miners rallied, what can possibly be bearish about it?”
Remember the red, vertical lines that I placed on the above chart to show the recent analogy? Those were the moments when the nonfarm payrolls came out below expectations. Both previous cases marked the key yearly tops.
But.
The thing is that top didn’t form exactly when the jobs report was released, but after a quick run-up that followed. Consequently, the fact that we saw a quick run-up this week is not something that invalidates this bearish (!) analogy – it’s something that fits right into it.
Besides, due to yesterday’s upswing, junior miners moved back to their rising resistance line (previous support) without breaking above it. It means that the GDXJ price currently verifies the breakdown below this level.
Given gold’s weakness, its proximity to the 50-day moving average, and – most importantly – how likely the USD Index is to reverse very soon, it seems that this breakdown in the GDXJ will be verified shortly, and this, in turn, means that the powerful medium-term decline is likely to be resumed very soon as well.
This creates great trading opportunities, not only in mining stocks but also in other markets. It’s not easy to take decisions against the emotional reactions of other market participants – congratulations on staying strong!
Remember, a rally doesn’t have to be bullish, and a decline doesn’t have to be bearish. In fact, tops can only form after rallies, and bottoms can only form after declines. Please keep that in mind the next time when you “feel” the urge to follow the current sentiment just because it “feels” like a good idea. It’s best to analyze the situation first and only then take action – skipping this step tends to be costly.
Indeed, after the statistics-based rally, we saw a top verification of the previous breakdown, and then the decline continued.
We saw the same kind of indication once again, and we once again saw a daily rally. But does it mean that we’ll see more strength in the very near term?
No.
The thing is that this time, the markets were not surprised to the same extent. Previously, the nonfarm payrolls were almost 18% below expectations. Last Friday, they were only 6.5% below expectations. And we already saw a rally – an intraday one.
This doesn’t mean that GDXJ “certainly” won’t go higher here. In fact, if the rally was to be about one-third of the previous rally (just as the surprise this time was about one-third of what it was last month), then we could still see a move to $37 or so.
However:
- This potential move higher is rather tiny – too small for any trading adjustments to seem justified from the risk-to-reward point of view.
- Gold already indicates that it wants to move lower here.
At the beginning of today’s analysis, I emphasized that it’s important to notice not just what does as an obvious reaction to a given piece of news is, but to also notice the immediate follow-up. The latter is even more interesting because it shows what the market participants really think.
At first, if a piece of unexpected news hits the market, the latter is forced to react to adjust to the surprise. So, whatever happens, is not really informative because it “had to” happen.
Lower-than-expected payroll statistics imply a weaker economy, which implies that Fed might make a dovish U-turn. Of course, this is without considering that the demand would have to really fall first in order to really curb inflation. Either way, the market viewed this as something bullish for gold and silver. At least initially.
What happens next is what “didn’t have to” happen, and therefore it shows the market’s true intentions.
Gold and silver both moved higher in the immediate aftermath of the news release, but… Everything moved back to the pre-release trading range shortly thereafter – just as if nothing had happened.
The GDXJ ETF moved higher after the opening bell, but it then reversed and declined below the opening price and closing there, thus creating a bearish intraday reversal.
Zooming in shows that the GDXJ simply moved back to the previous intraday lows and then moved back down. This is something that is a completely normal phenomenon during bigger declines. I marked two previous cases when we saw something like that with green lines.
And let’s keep in mind that the above reflects only Friday’s session – it doesn’t take into account today’s pre-market decline in gold price. Consequently, the real implications are even more bearish.
So, while the nonfarm payroll statistics were once again surprisingly low, it seems that the real implications are bearish despite the immediate-term effect that triggered a quick run-up. Just like what I wrote, the true bearish nature of this event became true last month, and we’re likely to see even more bearish action this month.
I congratulated you on not being caught by the emotional rally last month, and I think that congratulations are due also this time. Friday’s rally was small, but some traders that focus on news only and act on it without digging deeper probably reacted in a way that they will ultimately be happy with. You stayed strong – congratulations.
And yes, all this means that the huge profits that we recently reaped in the FCX are likely to be joined by massive profits from the current short positions in the junior mining stocks and in the FCX. Stay tuned!
On an administrative note, the next big flagship analysis is going to be posted on Tuesday (tomorrow), and I’m planning something special for this Friday.
Finally, since sliding GDXJ prices is such a great piece of news, here’s… Even more great news! We just opened the possibility to extend your subscription for up to three years (at least by one year) with a 20% discount on the current prices.
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? Also, this might be a good time to also get interested in a consultation or RMP profile – the 20% discount applies here as well.
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 down, and it seems that the next short-term downswing is already underway. In mid-July, we saw major reversals and the following decline in precious metals and miners took place exactly as it was supposed to.
The Aug. 2 slide confirmed the bearish picture, and it makes the following slides even more likely.
We might see an opportunity to take profits from the current short position in the GDXJ (and perhaps go long) if it moves below $33 after a quick downswing or at lower levels – but it’s too early to say for sure at this moment.
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 (so far 8 trades in a row), 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)
///
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 to of value can be created through this kind of collaboration :).
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
