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. We are moving the profit-take levels closer to the current prices. We are also adding a stop-loss to the current trade below the entry position, which means that we are pretty much (unless the market opens above the SL, which is extremely unlikely) securing some profits on this trade while at the same time, we are letting them grow further.
Some might consider an additional (short) position in the FCX.
Gold, silver, and miners have been declining substantially recently, just as the USDX has been soaring. But all (good?) things come to an end, right?
While the above is up for debate, it’s definitely true that no market moves up or down in a straight line *cough* except for silver *cough* without periodic corrections. And since the precious metals sector has been declining relentlessly recently, it seems natural to expect it to at least correct sometime in the near future.
Indeed, there are signs pointing to a nearby reversal and an upcoming correction… Before the carnage really begins.
Let’s start today’s discussion with a look at the two markets that can (and do) impact the price moves in gold, silver, and mining stocks: the USD Index and the general stock market.
The USD Index has been truly soaring since its fake breakdown to new yearly lows. It took a breather right before and right after breaking above its May/June highs, but it moved sharply higher thereafter.
The RSI based on the U.S. Dollar index jumped well above 70, then it corrected a bit, and now it’s once again in the overbought territory. In recent history, there was only one similar situation, and that was in May 2022.
Since history tends to rhyme (just as the people’s emotional responses to similar price moves remain similar under varying economic conditions), the above situation is our best guide into the current state of affairs.
What happened then is that the USDX – after moving to the extremely overbought levels (in RSI terms), corrected slightly and then moved higher once again. That was the final short-term top. Then, a brief pullback materialized, and the rally continued.
What’s interesting is the size of the move above the initial high that was accompanied by the extreme RSI reading. I marked that move with a blue line, and I copied it to the current situation. If the USDX rallies in a similar manner here, it will top close to the 107.5 level.
This level is approximately confirmed by another technique – the Fibonacci extension. The technique suggests that a bigger move can be approximately 1.618 times bigger than the initial rally in the same move. So, it’s kind of like a Fibonacci retracement, but the other way around. Applying this technique to the current rally and using the August top as the end of the initial move provides us with ~107.6 as the target price.
The most recent high was 107.05, so it seems that the U.S. currency could move slightly higher before forming the final top. It could also be the case that it already topped, but the former seems more likely.
And you know what was the most important thing about it all from a gold investor’s point of view? That gold didn’t rally recently when the USD Index corrected a bit. This indicated that gold wasn’t ready for a rally just yet – it seems that it needs to go even lower before it can rebound.
Also, while we’re discussing the USD Index, let’s not forget how perfectly the technical technique called the cyclical turning point worked this year.
The simple and obvious (yet noticed by very few people) technique is to take into account the USD Index’s tendency to form local bottoms in the middle of the year. That’s exactly what happened this year, and it was one of the things that made me doubt the USD Index’s breakdown to new yearly lows. I wrote that this move was likely to be reversed and that the implications of that invalidation would be profound. With the USD Index well above 106, it seems that they were indeed profound.
Anyway, the key takeaway from the USD Index’s analysis for precious metals investors is that gold, silver, and mining stocks might decline a bit more before they form a short-term bottom, as they are negatively correlated with the USD Index. After all, the opposite seems to be in the cards for the latter.
How low can the USDX decline when it corrects? Of course, I can’t make any promises, but it seems that a pullback to the previous highs and the 38.2% Fibonacci retracement - at about 105 – would be a likely outcome.
Having said that, let’s see what’s going on in the stock market.
The S&P 500 Index just broke below its rising support line, and it closed there for two consecutive days. This happened right after the index verified the breakdown below the neck level of the head and shoulders pattern that I wrote about (as being potentially formed) a few weeks ago.
The best and most interesting part of all this is that both moves make much more sense together than when being examined independently. You see, the head and shoulders patterns tend to be followed by a small correction – a verification of the breakdown below the neck level.
I previously wrote that the rising medium-term support line would be likely to provide the necessary trigger for that move. That’s exactly what we saw. And now, since we’re already after this correction and this support line has been “taken out”, the natural follow-up to the head and shoulders pattern can emerge.
And the follow-up is that the decline below the neck level is likely to be approximately equal to (or bigger than) the size of the head of the pattern. I marked this technique on the above chart, and it points to a move to about 4,100.
Naturally, this doesn’t imply that the entire medium-term decline is likely to end there, but it does indicate that it’s where stocks are likely to at least take a breather and correct.
What’s the takeaway for the precious metals’ investors and traders? That the next corrective upswing might be just around the corner, but we’re not at it just yet. Also, since the stock market is more correlated with silver and miners (especially junior mining stocks) than it is with gold, the above is particularly important for those two markets.
Speaking of mining stocks, let’s take a look at their chart from the long-term point of view.
The HUI Index is a proxy for gold stocks, and the reason why I’m featuring it is that indexes are better for assessing long-term trends than ETFs – after all, the latter have fees etc. that impact their valuations in the long run and can distort the technical implications a bit.
On a side note, this effect is very (!) strong in the case of leveraged ETFs, which is why it’s not a good idea to apply technical analysis to leveraged ETFs like JNUG or JDST (to be precise, there might be some very rare exceptions).
The thing that I want to emphasize here is the fact that the HUI Index once again moved to its rising, long-term support line (marked with orange). That’s the same line that stopped the 2022 decline.
To be precise, what happened previously was that the HUI Index moved slightly below this line and then invalidated this move, which was followed by a sizable short-term rally.
I expect this line to hold once again, but this time to trigger only a small rally. And when everyone and their brother will expect gold stocks to soar, like they did in the second half of 2022, gold miners will plunge (after the small corrective upswing).
The upcoming slide is not likely to be a small thing.
No.
The current situation appears to be similar to what we saw in early 2013 (broad head and shoulders pattern marked with green, similar situation in the indicators, extreme underperformance of gold), and based on that, we can expect the corrections to be relatively small and quick and the declines to be enormous.
While we’re looking at the markets from a broader perspective, let’s take a look at the long-term proxy for junior miners – the Toronto Stock Exchange Venture Index.
What we see on the above chart might as well be the very definition of a “screaming sell signal”.
What happened recently is a sizable short-term decline. It’s not a big deal on its own.
Now, what makes it a HUGE DEAL is the fact that this move lower happened after about a yearly consolidation, a breakdown below the rising, long-term support line, and in tune with the analogy to… early 2013!
I just mentioned the same period based on a different index! The fact that we see an analogy based on two separate indexes that are both very important makes the link to early 2013 so much stronger!
The action that followed 10 years ago took many (let’s be honest – almost everyone) by surprise. This time, we’re prepared. This time, we’re ready to apply a judo-, jiu-jitsu-, or aikido-like move, and instead of being hurt, we’re taking advantage of that slide.
Still, before the massive slide materializes, it seems that we’ll see at least one corrective upswing, and it seems that it could start at prices that are just slightly lower than the current ones.
How low can the GDXJ go? Based on the most recent price moves, the upper of the two previously mentioned support levels – close to the $28 level.
My previous comments on the above chart remain up-to-date:
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 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 supported also by the technique that suggests that at 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.
What I’d like to add on top of that is that based on the more short-term chart, it could be the case that this level is reached close to the end of this week or early next week.
The thing is that the triangle-vertex-based reversal point is just around the corner – it points to Friday’s session as the likely day of the reversal. However, since those turning points can work on a near-to basis, I wouldn’t say that the bottom has to take place exactly on that day.
What I would like to say is that the bottom is likely to form rather soon, which is why I’m adjusting the profit-take levels for the current short position.
What’s likely to happen after this bottom?
Of course, there are no certainties, but it seems quite likely that we’ll see a sharp corrective upswing. Why sharp? Because the decline was sharp as well. The $32 level seems to be a good upside target for the corrective upswing (once the bottom is in; not yet), as that’s where the previous 2023 low was, and a move to that level would imply a verification of the breakdown below it.
Moreover, please note that such a move would be symmetrical to the decline that we saw last year in October. Markets sometimes make those symmetrical moves, and sometimes they are like “anniversaries”. Those are not very reliable techniques, but since they are just on top of what seems likely based on other techniques, they simply fit the narrative and make it more likely to happen.
Gold is close to its downside target area, but it hasn’t reached it just yet.
It’s the same with silver. The white metal just touched its 61.8% Fibonacci retracement level, which could mark the bottom, but please note that the 38.2% retracement didn’t really work – silver had to move below it in order to bottom.
So, the previous 2023 low seems to be the more likely downside target. And since the current pace of silver’s decline is very fast, it could indeed take just an extra one, two, or three days for this bottom to be reached. Besides, $20 is a very round number, and those numbers tend to be important support levels simply because more people pay attention to them.
Looking at gold from the long-term perspective tells us that it is moving in tune with the analogy to 2011-2013 (marked with orange), and if the current situation is indeed just like what we saw in early 2013 (which fits the above chart, too), then gold would be likely to form a short-term bottom close to its previous bottom, then correct, and then truly slide.
Before summarizing, I’d like to show you something very important in the copper market.
Copper price just broke decisively below its rising support line, which was also the neck level of a head and shoulders pattern. This is a major technical development that’s likely to lead to further declines. The target is at about $2.9. So, yes, copper is likely to move below its 2022 lows in the following weeks/months.
In fact, it’s likely to move much lower, but $2.9 is likely to be its first stop on the way to new lows.
And since both: gold and copper are likely to move lower, then the same is likely to be the case to a major copper and gold producer – FCX.
Just like copper itself, FCX is after a major breakdown, and this happened right after it tried to move above its 2007 high.
I warned that this breakout was most likely to fail – and that’s exactly what happened. FCX is likely headed to new yearly lows.
All this means that the profits in our short position are likely to increase further. The profit-take levels for this downswing have been adjusted and I also placed a protective stop-loss – “just in case”. Actually, since this ~”stop-loss” is placed below our entry for the current short position, it’s actually a specific kind of protective profit-take level.
Of course, it’s more likely that the regular profit-take level (close to $28) will be reached, and not the “protective” one.
===
If you’d like to become a partner/investor in Golden Meadow, you’ll find more details in the above link.
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!
===
Since the GDXJ (as well as gold and silver) moved lower very fast, it seems that it’s likely that it will bounce from the higher of its support levels – at about $28. Consequently, we’re moving the take-profit levels higher. Please note that the decline is likely to continue after the temporary rebound, so we’re likely to profit on the decline to $26 and below it anyway – it’s simply likely to be the part of the next trade and not this one.
I’m also placing a protective stop-loss order, but since it’s placed below our entry price for the current short position, it’s still a kind of a profit-take level, but one that would be activated, if things don’t go our way.
===
Moreover, if the GDXJ declines to $28.12, it will create a very short-term buying opportunity and I think that at that point small (50% of the regular position size) long positions in GDXJ (some might consider a long position in JNUG if they seek leverage) would be justified from the risk to reward point of view.
I will consider this position to be opened automatically without an extra Alert from me. I will likely send one as a confirmation, but just in case I won’t be able to do that (I will be traveling on Monday) I’m writing about this in advance.
I think that this rebound would last for about 1-2 weeks and that it would take GDXJ back to about $32.
===
On an administrative note, there will be no Gold Trading Alerts on Monday, Oct. 9, due to PR’s travel schedule. That’s one of the reasons why the above trading plan in being provided in advance. The Tuesday’s Gold Trading Alert (and the following ones) will be posted normally.
===
Finally, since 10th profitable trade in a row is such a great piece of news (and the same goes for the fact that the current short position is already profitable), here’s… Even more great news! The possibility to extend your subscription for up to three years (at least by one year) with a 20% discount from the current prices is still open.
Locking in those is a great idea not only because it’s 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: $28.12; stop-loss: 33.31.
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: $10.74; stop-loss for the JDST: $7.70.
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: $22.42)
SLV exit price: $18.62 (stop-loss: $20.51)
ZSL exit price: $24.98 (stop-loss: $21.10)
Gold futures downside exit price: $1,812 (stop-loss: $1,902)
Spot gold downside exit price: $1,792 (stop-loss: $1,882)
HGD.TO – alternative (Canadian) 2x inverse leveraged gold stocks ETF – the exit price: $9.26 (stop-loss: $6.64)
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the exit price: none – the profit-take level was already reached for this trade.
///
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 ton of value can be created through this kind of collaboration :).
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
