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.
I won’t mince words: yesterday’s session was extremely generous in providing us with clues as to what kind of price action is real, what is fake, and what is to be expected.
In my analysis yesterday, I wrote that the immediate-term price movements might be chaotic, especially in gold and forex. That’s where we saw the greatest turbulence. To be precise, we also saw significant daily volatility in silver and fresh lows in the FCX, so the profits in the short position in that particular instrument have increased yet again.
Just a quick update on the latter before I move on to the main part of today’s analysis.
We shorted FCX on March 8, which provided a great entry point as the stock moved higher during the first part of the day, so we shorted into strength – it was easy to open the position.
The target was about $34, and it remains up-to-date.
Now that yesterday’s session is over, we had a (hopefully) good night’s sleep (if you didn’t, it might serve as an indication that the sizes of your positions are too big…), and (since none of us controls the market prices) we can do the only thing that depends on us in the case of investing and trading: analyze the situation as objectively as possible.
Let’s start with the general stock market.
After big intraday volatility, the S&P 500 ended the day slightly lower. This is not really important by itself, but it is important in the context of the head-and-shoulders formation that stocks have just completed. By moving higher and then ultimately closing slightly lower, the breakdown below the neck level of the formation was confirmed.
This means that the short-term outlook for stocks became even more bearish, and the odds are that this is indeed the first part of a massive, medium-term move lower. The technical link to 2008 that I described in my previous flagship Gold Trading Alert as well as the fundamental notes that I made yesterday all point to lower stock market values in the following weeks and months.
This has bearish implications for the precious metals sector, as it’s been moving in tune with stocks for almost a year now. In particular, silver and mining stocks (especially junior mining stocks) are likely to be impacted by lower stock market values.
Before we look at the USD Index, please consider the lower part of the above chart that features gold, silver, and gold stocks (brown color). Please note that while gold and silver moved visibly higher, the price action in gold stocks is barely noticeable from this point of view. Timing is one thing, but sector selection is another way, in which I’m creating value for you.
Do you remember how I recently described the likelihood of seeing a rebound (the one on which we profited) based, i.a., on the similarity to mid-2021 in the USD Index?
It seems that this similarity continues to some extent, but this time it appears to be taking place at a faster pace.
I marked the current similarity with green rectangles.
After the initial rally, the USDX corrected to its (blue) 50-day moving average (approximately). During this move lower, the RSI moved below the 50 level after an initial rebound. In response to the above, gold moved higher – above the previous high.
Back in mid-2021, the move higher in gold was not significant compared to the size of the initial rally. This time, the initial rally was smaller, and the second upswing was bigger. That’s fine – the history was never supposed to repeat itself to the letter, but it was likely to rhyme. And indeed, it just rhymed.
What happened next? The USD Index resumed its uptrend, and gold plunged. The decline in gold was disproportionately big compared to the rally in the USDX. This analogy, therefore, has very bearish implications for gold going forward.
That’s not the only bearish thing that happened on gold’s technical front.
Gold also moved on huge volume, and the last time it did so was at its 2022 top.
Also, I’ve been writing about the similarity between now and what happened in the middle of the previous year, but it seems that the analogy should be adjusted. The early 2023 top seems to be similar to the early 2022 top, and what we see now is actually similar to what we saw in mid-April 2022.
In fact, if you consider that gold formed a double bottom in March 2022 and also in February and March 2023, the link becomes even clearer.
Now, how high did gold rally back in April before launching a powerful, almost $400 slide? It rallied (almost) to its 61.8% Fibonacci retracement level.
How high did gold move yesterday? Slightly above its 61.8% Fibonacci retracement level. At the moment of writing these words, gold futures are trading at about $1,906, which means that they have already moved back below the 61.8% Fib. retracement, thus making the situation even more similar to what we saw last year.
If the analogy were to continue, what would be the next step for gold? A decline – a powerful one.
One might say that a single, huge-volume session is not that important, just as one swallow doesn’t make a summer. And that would be nicely said, but…
Silver provides an extremely clear indication of just how important yesterday’s volume was.
In practically all cases, when silver moved higher on volume that was similarly big (there were four such cases), it marked a major top. This includes the 2021 top (slightly above $30) and the 2022 top. It also includes this year’s top that we saw in early February.
It’s not particularly complicated, nor is it perplexing. The difficulty in applying this knowledge in practice is the ability not to follow the herd, despite it being difficult on an emotional level.
The remedy is simple: take at least a small break from the market’s emotionality, stop checking prices for at least a while, and do something that relaxes you. Take a walk, talk to your loved ones (but not about the markets ;) ), meditate (perhaps with ceremonial-grade cacao, which is my personal favorite), or do whatever you know works best for you.
Then, once you have grounded yourself and can look at everything – including markets – with a calm mind, look at what the chart is really saying.
In my opinion, based on what we see on the above chart, the silver price is saying “don’t let this fool you, I’m about to decline after showing strength, just like it’s happened many times before – the cycle is almost complete, you still have time to react, but not much thereof”.
What about junior miners?
The volume was also huge, but it doesn’t tell us much here, because the huge-volume sessions marked both tops and early parts of rallies.
Given what we saw on the silver market, it’s very likely that GDXJ’s volume confirms the former, but it’s not a sell indication on its own (and it’s not a buy one, either).
Just like I wrote in one of the comments below yesterday’s Gold Trading Alert (BTW, I think with over 60 replies, we had a connection record yesterday), the current correction seems similar to two previous corrections that we saw in the middle (approximately) of big declines.
That happened in mid-2021 and mid-2022. I marked those cases with red rectangles. The similarity might not be obvious in terms of prices as the shapes of corrections were a bit different, but the similarity is definitely visible in the RSI indicator.
The thing is that in both previous cases, the RSI “had to” rally above 50 in order to “complete” the correction.
Anyway, yesterday’s closing price was mere $0.13 above the entry price for our current short position, so we’re basically neutral here (while being profitable in the FCX), and given today’s pre-market declines in gold futures and in the GDXJ in today’s London trading, it seems that the short position in the GDXJ will become profitable once again soon – perhaps as early as today.
The most interesting part of this correction is that it’s very similar to how the GDXJ traded in December 2022. That was when we also saw the back-and-forth movement. That was during an upswing, and now the tables have turned – it’s taking place after a decline.
The really important detail is that this makes the head-and-shoulders top pattern in the GDXJ even more symmetric and therefore even more reliable!
This means that the downside target about $26 that’s based on the size of the head of the pattern as well as the 2022 low is even more likely to be reached in the following weeks/months.
If stocks slide in the 2008 style, just like I wrote previously, then the $26 level could also be reached in a quite volatile manner (remember how fast GDXJ declined in 2020?). This, in turn, means that the odds of a decent (but brief) rebound from those levels are increasing. It’s too early to say if I will want to switch into a long position once the GDXJ moves to $26, but I’m not ruling it out at this point.
Either way, even though the immediate term might look chaotic or unclear, the outlook for the following weeks and months remains extremely favorable. This is one of those opportunities that are hard to come by – and very few people realize it at this time.
Overview of the Upcoming Part of the Decline
- It seems that we’re seeing another – and probably final – corrective upswing in gold, which is likely to be less visible in the case of silver and mining stocks.
- 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 – perhaps with gold prices close to $1,500 - $1,550.
- 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), and 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, after all), so that more people can contribute to the reply and then enjoy the answer. Of course, let’s keep the target-related discussions in the premium space (where you’re reading this).
Summary
To summarize, in my view, the real interest rates are up and about to soar higher, the USD Index is likely to soar, and the precious metals are likely to slide – most likely in the 2008 style. Silver, miners, and especially junior mining stocks (and the FCX) are likely to slide the most.
In the very near term, the price of gold (and, to a much smaller extent, the prices of other parts of the precious metals sector) might be chaotic, as safe-haven buying is likely to be mixed with all sorts of other factors (like the initially declining USDX and then truly soaring USDX, a falling stock market in the U.S., a falling international stock market, etc.).
Not all trades are worth making, and let’s keep in mind that we just profited from a quick long position and re-entered the short positions in GDXJ just $0.10 from the top in terms of the closing prices.
Junior miners were ONCE AGAIN REMARKABLY weak relative to gold, which is a SCREAMING confirmation that a huge decline is likely underway.
This might be a good moment to check if the size of your position is appropriate – if it’s too big, then it’s a good idea to moderate it, but if one was just “testing the water” with a tiny amount of capital, it might be a good moment to take a more “regular” approach.
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Also, congratulations to those of you that took advantage of the extra trade that I featured in the FCX – the positions entered became profitable almost immediately, and it looks like those profits are about to increase much more in the following days/weeks.
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As a reminder, we still have a “promotion” that allows you to extend your subscription for up to three (!) years at the current prices… with a 20% discount! And it would apply to all those years, so the savings could be substantial. Given inflation this high, it’s practically certain that we will be raising our prices, and the above would not only protect you from it (at least on our end), but it would also be a perfect way to re-invest some of the profits that you just made.
The savings can be even bigger if you apply it to our All-inclusive Package (Stock- and Oil- Trading Alerts are also included). Actually, in this case, a 25% discount (even up to three years!) applies, so the savings are huge!
If you’d like to extend your subscription (and perhaps also upgrade your plan while doing so), please contact us – our support staff will be happy to help and make sure that your subscription is set up perfectly. If anything about the above is unclear, but you’d like to proceed – please contact us anyway :).
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 $34.13 as the short-term profit-take level. (stop-loss: none)
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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.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
