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.
New yearly low in the GDXJ, plunging silver prices, and louder questions about the upcoming bottom. Let’s start.
Yesterday’s session was the first one that we saw this year when the GDXJ briefly moved below $31. It then moved slightly higher and closed at $31.04, but the correction was tiny, and it didn’t result in a major daily reversal.
In my yesterday’s gold price analysis, I wrote the following:
The GDXJ topped on Friday at $33.20 and then it declined by almost a full dollar, closing the week at $32.23.
In this way, junior miners verified their move to new 2023 lows through:
- weekly close below the previous 2023 lows
- three consecutive daily closes below the previous 2023 lows
- the comeback to the previously broken support line, which was followed by a decline, which verified the line as resistance.
This means that whatever rally was likely to happen based on Wednesday’s and Thursday’s reversals might have already happened.
The slide to new lows can now continue.
Also, please note that I wrote that I didn’t think that it was a good idea to adjust the short position even despite the possibility of seeing an intraday rally here.
Now, the question is, how low would be too low for the mining stocks? In other words – when are they likely to bottom, at least temporarily?
As you can see on the above chart, I marked a downside target area with a green ellipse – that’s where the next bottom is likely to form in my opinion – between the levels slightly above $28 and approximately $26.
Why? There’s no significant support above $28, and the support provided by $26 (the 2022 low) is very strong.
The higher of those targets is also supported by the technique that suggests that a decline that follows a consolidation is likely to be similar to the one that preceded it. We just saw a tiny consolidation, and I marked the preceding decline with a purple dashed line. I copied it to the current situation, and it points to price levels below $29 as the next target. This technique doesn’t have to be precise – it can work on a near-to basis, so the support provided by the October and November (2022) lows seems to be a more likely target.
- “But PR, the RSI is below 30! Shouldn’t we get a rebound right away, because of that? The situation seems oversold…”
It’s true that when the RSI moves below 30, it often creates a buying opportunity, but this is the case during “normal times”. Miners just broke to new yearly lows, and the link to 2013 has been in place for many months. The consequences are finally starting (!) to hit the market.
Simply put, these are not “normal times”.
Do you know how well this classic RSI signal worked for the GDXJ during the 2013 slide? Let’s check.
The vertical, dashed lines mark situations when RSI moved to 30. In the first part of the decline, there were small rallies once the RSI flashed its classic buy signal. After that, when the pace of decline picked up, the classic buy signals from the RSI were usually either followed by big declines (4 cases), unclear action (2 cases), or a tradable rally (1 case).
The pace of the decline just picked up. We entered into the “watch out!” territory as techniques that worked previously might not work as well in the next several months.
RSI at 20 might be an important buy signal, but I suggest combining this indication with other techniques before making any adjustments to one’s trades.
One would be to check directly what happened back in 2013.
Obviously, the world was a different place a decade ago with regard to many things, but not with regard to things that matter the most when it comes to why price moves happen in the same (or similar) way over and over again: human emotions. When presented with similar situations price- and volume-wise, people tend to react similarly. This means that when we notice what part of history is being repeated to some extent, we can use that insight to project the next price moves.
Of course, this will never be 100% accurate, and that’s not the point. The point of the analogy is to be “accurate enough” to be useful. And when you combine enough “accurate enough” techniques, you get a quality gold price forecasting system. Naturally, there will always be mistakes (still, we’re on a 10-winning-trade streak and the current short position in GDXJ is very profitable, too).
What does 2013 tell us about 2023? It tells us quite a lot, but for the sake of this analysis, let’s focus on the current situation. When the GDXJ broke below its previous lows, it continued to decline until:
- GDXJ declined about 28% from its most recent top.
- GDXJ declined about 12% below its previous lows.
With the above in mind, please take one more look at the first of today’s charts. The texts that I placed on it will now make more sense.
Both downside target levels are confirmed by the link to 2013! Magic? No – the history simply tends to rhyme just as human reactions to similar price events tend to be similar.
Which of those targets will stop the current decline? The reply might come from gold.
Ever since topping at its triangle-vertex-based reversal point (which worked perfectly – technical analysis works!), the gold price has been sliding.
In the case of gold, the next target is clearer. Gold has two support levels that are close to each other. The targets are at about $1,820 and $1,800, respectively. Out of those, the latter seems more likely to stop the decline as the gold trading technique that creates it already worked. The support is provided by the 61.8% Fibonacci retracement level, and the previous (38.2%) Fibonacci retracement levels triggered the June bottom.
This means that another $40 - $50 decline in gold might be in the cards. Also, to be precise, I mean “gold futures” – the same instrument that you see on the above chart. Spot gold is also likely to decline by that amount (approximately) starting from Monday’s closing price.
Whenever the GDXJ is with gold at about $1,800, might be its bottom. If it’s close to $28 at that time (which seems likely), we’re likely to see a corrective rally from that level.
All this means that the profits in our short position are likely to increase further. The profit-take levels for this downswing remain up-to-date, but if gold moves close to $1,800, I might quickly adjust them. I will send an intraday Alert in this case.
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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 medium-term trend in the precious metals sector remains clearly down, and it seems that the corrective upswing is already over, and the profits on our current short position are going to increase. We recently caught the 10th profitable trade in a row – congratulations. The outlook for the short positions in junior miners and in the FCX remains very favorable.
You managed to re-enter most of the short position at prices that were higher than the ones at which we had limited the size of the position, and it seems that the overall profits from this trade are going to be higher thanks to this! Congratulations!
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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?
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: $26.12; 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: $12.18; 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: $10.38 (stop-loss: none)
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the exit price: $18.87 (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
