Briefly: in our opinion, full (300% of the regular position size) speculative short positions in junior mining stocks (GDXJ) 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.
Just how clear a reversal can be? Last week’s gold’s performance replies: extremely so.
The implications are so crystal-clear that I’m not sure if it’s even needed to describe them. But I’ll proceed, nonetheless.
The bigger the size of a given formation and the clearer it is, the more important the implications are.
Last week’s reversal in gold was enormous. Gold started the week by soaring to new all-time (nominal only, but still) highs, which was almost immediately followed by a move back down. And what a decline that was!
Gold’s initial upswing of about $60 might seem impressive until one compares it to the ~$140 decline that followed from the top. So, yes, gold ended the week almost $80 lower, crushing the hopes for a confirmed breakout.
Instead of a breakout, we saw a powerful invalidation. And gold didn’t invalidate its breakout to new highs in just intraday terms. It happened also in terms of the daily closing prices and – most importantly – weekly closing prices. Yes, last week, gold closed lower than it had closed in early 2023 at the weekly high.
So, we have a formation that’s enormous, we have massive and super-important invalidations (hey, these were all-time highs!), and it all happened on big volume, which further emphasizes the importance of what happened.
We even have an analogy to the first week of 2021, where gold also reversed in a profound manner. Yes, gold then declined for several weeks in a truly profound manner.
On December 4, when gold was still above the previous all-time-highs, I wrote the following:
Looking at the gold futures chart itself, we see that it just jumped to new nominal highs (in real terms, it hasn’t) in the overnight trading, but it already erased a large portion of that rally, forming a shooting star reversal pattern. Of course, there’s still many hours before the session is over, but the move back down could easily continue from this kind of setup.
Invalidation of the move above the previous highs in gold will serve as a massive sell signal that will be clear for everyone. If you’ve been wondering what could be the trigger for the next huge move lower – gold’s upcoming invalidation is a very likely candidate. The GDXJ-based RSI already provided more than enough of the required context.
Staying focused on what’s likely here based on technical indications is not easy. It’s very difficult. And yet, discipline like that was important during many of our previous trades (and we’re on a streak of 11 realized profitable – unleveraged – trades). It seems that the medium-term decline is about to resume any day or hour now, and that this is likely one of the worst moments to be bullish on mining stocks. The previous moments when GDXJ-based RSI was well above 70 were excellent shorting opportunities, and the same is likely also this time. Stay strong.
Indeed, that was an excellent shorting opportunity.
Zooming in allows us to see that gold stopped at its rising support line based on the previous highs. This might (or might not) generate a rebound. Given the importance of the weekly reversal, any rebound here is not likely to be something significant.
Also, the horizontal dashed line marks the previous high in terms of the daily closing prices – it’s obvious that gold closed well below it, invalidating the previous upswing.
Gold is likely to slide here, and mining stocks are likely to slide even more. VERY exciting times ahead!
Miners declined on Friday as well, proving that the move above their 61.8% Fibonacci retracement was fake. What’s likely to happen next, given that gold price is likely to slide, and miners have been relatively weak compared to gold?
Yes, that’s right, miners are likely to continue to be weak relative to gold, which, in this case, means that they are likely to decline even more than gold.
This would be in tune with the sell signal from the RSI indicator that we saw recently. On December 4, when GDXJ was after the short-term rally, I wrote the following:
During sharp rallies, it’s nearly impossible to convince investors that this move is about to end. And yet, that’s exactly what is likely.
That exactly what the GDXJ chart and the position of the RSI confirm.
The RSI indicator moved well above the 70 level and this is something that happens very rarely. I zoomed out the chart that I usually feature, so that we can see all the key moments in the recent history when we saw something like that.
I marked those moments with red arrows.
Yes, that’s exactly how the 2020 top formed – with RSI well above 70. Also, let’s keep in mind that the GDXJ ETF top formed at about $62.
Since 2020, we saw this massive sell signal from the RSI four more times. Three times it accompanied major tops, including the 2023 top. The 2022 signal took place shortly before the 2022 top.
The fourth time when we saw this massive sell signal from the RSI based on the GDXJ ETF is right now.
Is this time any different?
There’s a small chance that it might be different, but if it was really the case, the GDXJ would be showing actual strength relative to gold. You know, like, moving above its previous highs before gold does something like this.
The implications were extremely bearish back then and they are extremely bearish also for the following weeks.
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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 short-term corrective upswing in the mining stocks is most likely over, and that the top in the precious metals market is in. And just like the top that we saw in the first half of 2022, this top is likely to be followed by severe declines in gold, silver, and mining stocks. Junior miners are likely to fall particularly hard, being influenced also by – most likely – falling stock prices. The values of copper and FCX shares are likely to slide as well.
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: 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: $10.54; 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: $8.43 (stop-loss: none)
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the exit price: $19.49 (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
