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. In other words, we just re-opened the short positions above their previous exit prices, thus increasing the overall profitability from the bet on this big, medium-term decline.
Some might consider an additional (short) position in the FCX.
Theoretically, it’s not really important to pick the exact top – it’s good to be just near it when making transactions. And to be 100% precise, all that matters is that the exit price is more favorable than the entry price for a given trade. And if the annualized rate of return is better than the risk-free rate of return (one that bonds provide), then it’s already very good.
And yet, there’s a specific sense of satisfaction that comes from being able to withhold from trading before the price hits the extreme and entering the trade on the exact day of reversal. In fact, it’s even more satisfying if it was known in advance when the price is going to reverse and at what price – and then it really happens.
Well, my friends, it seems that we were able to do exactly the above. It might be too late to congratulate ourselves because the trade is not over yet, but it does seem that we re-entered short positions right at the reversal. Actually, it gets better. Not only did the GDXJ reversed before the end of the day, and not only did it move below our entry orders, but it also moved below the day’s opening price, thus ending the day “in the red”!
On top of that… The intraday high was only several cents above the levels that I wrote about previously as the entry price ($35.57 and Friday’s intraday high was $35.63) for this short position (in my previous Gold Trading Alert), so even if someone missed my intraday Gold Trading Alert on Friday, they would have entered the short position almost exactly at the intraday top.
And the best part is…
The best part is that the outlook is now extremely bearish because of what happened on Friday, so our (almost immediate) profits are now very likely to increase shortly.
The intraday reversal itself, as well as the place where AND WHEN we saw it all confirm that the top is in.
And if it isn’t, it’s likely that anything that we’ll see before the decline won’t be significant or long-lived.
The WHEN aspect is covered by the triangle-vertex-based point, which was due on Friday. I wrote about this many days ago, which makes it Friday’s reversal much more reliable.
The fact that the GDXJ reversed after moving so close to both blue resistance lines, the previous top, makes it likely that that was IT. If, however, we see a tiny move higher, right to those resistance lines, it won’t change anything.
On a very short-term basis, we see that the GDXJ once again moved to the rising red resistance line, which stopped it. Right after the previous high, I wrote that the GDXJ was likely to move higher due to the triangle-vertex-based reversal point, and that’s exactly what happened.
In particular, I wrote the following (I’m putting the key fragments in bold – that’s what happened after I had written about it):
This means that the precious metals sector might not have topped yet, as the white metal tends to outperform the yellow one right before turnarounds.
Now, GDXJ’s very weak performance yesterday might suggest that the top is already in, and… It might be in for the GDXJ, but I still think that we’ll see a move even higher in the near term – or at least back to yesterday’s intraday high.
One of the reasons is the situation in gold that I already outlined above. The second reason is that junior miners’ triangle-vertex-based reversal point is very close, so miners might top before gold does. This is quite likely, as miners are likely to underperform gold close to the top (which we just saw).
Zooming in allows us to see that the GDXJ declined after moving to the rising red resistance line, but it then closed above the declining red support line, thus verifying it as support.
Yesterday’s weak performance of mining stocks might be at least partially explained by the weak performance of the general stock market.
The latter is moving back and forth, and yesterday’s session took the S&P 500 Index 1.34% lower. This movement is around two rising support lines, which makes those moves particularly important.
If stocks break lower from this consolidation, the breakdowns will be confirmed, and the road to new lows will be open.
That’s quite likely to happen within the next days and, if not, then weeks.
If stocks decline but gold rallies, we might see some erratic performance in mining stocks – similar to what we saw on Wednesday. In this case, miners could rally on the intraday basis once again and then decline before the closing bell.
The important thing is that all this is short-term smoke and mirrors. The medium-term trend remains extremely bearish, and even a brief look at world stocks confirms that.
Friday’s performance as indeed as I had forecasted – miners jumped higher and then they declined, closing the day lower. It seems that the profits from this short position are going to increase shortly.
Gold soared too, and it tried to close the week above $2,000 and… It failed. The RSI just moved slightly above 70, thus flashing a sell signal.
The size of the recent rally was symmetrical to the size of the early-2023 decline, suggesting that this might be the right shoulder of the broad (yearly!) head-and-shoulders pattern.
On an intraday basis, gold price moved to its July top and then declined. It seems quite likely that the top in gold is in or at hand.
Meanwhile, the stock market is declining in a sharp manner. This makes perfect sense as the interest rates have been increasing significantly, and the market is realizing that it wasn’t just a temporary “trick”. The Fed is really fighting inflation, and in order to do that, it has to decrease the market demand. This means lower sales, revenues, profits and… stock prices.
Technically, the S&P 500 is likely to decline to 4,100 or so before pausing. And then, it’s likely to decline much more. The implications for the precious metals market (especially for junior mining stocks) are bearish.
All in all, it seems to me that the profits from our current short position in the junior mining stocks will grow substantially soon.
As always, we’ll keep you – our subscribers – informed.
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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 given that the fear has most likely either peaked or is about to peak, and given the current technical indications, such as the fact that the triangle-vertex-based reversal in the GDXJ is due today and that gold just moved to its upside target area while silver is outperforming, it seems that re-opening the short position in junior mining stocks is justified from the risk to reward point of view.
On a side note, the combination of GDXJ’s resistance lines is a bit below $36, so a small intraday move higher here won’t invalidate the above at all.
We just re-entered the short position at prices that were higher than the price at which we took profits from the previous short position, so we most likely increased the overall profitability from this huge, medium-term downswing. Congratulations!
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Finally, please note that we just took profits from the 11th profitable trade in a row – and it seems that the 12th profitable trade is in the making. Please keep in mind that the possibility of extending 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 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: $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.
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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
