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.

In my analysis yesterday, I covered quite many long-term points. In particular, I explained why the current market environment is so difficult from an emotional point of view. If we are in the “return to normal” part of the bear market (which is the first corrective upswing that most investors consider to be the bull market’s continuation), it’s natural for one’s emotions regarding the market to play tricks on them. That’s just the way it is.

We see that through expectations regarding the Fed – that it will lower rates sooner and faster than it says that it might (!) lower them.

We see that through the gap between how priced-in are some economic indicators and how some aren’t.

Finally, we see this through the overall sentiment present on many places on the internet – what people are writing and how they are writing it. And how much they are willing to “defend” their outlook despite the economic data, for example, nominal and real interest rates. On one hand, it’s obvious that it took just a fraction of what we saw now (in terms of rate hikes) to cause the 2008 meltdown, and yet, even though we also saw cracks in the banking system, very few see the similarity between both periods.

Commodity stocks like FCX are leading the way lower, but if you’ve been following my FCX trade, you know that very well, because your profits on this short trade are huge, even though it was entered just about 1.5 months ago.

But I wrote about all that yesterday, so I don’t want to go into the details of the long-term picture for the stock market (and other markets) also today. Quite the contrary.

In today’s analysis, I’d like to zoom in and focus on what we saw very recently, including today’s pre-market trading.

Let’s start with context, which is provided by the USD Index.

After back-and-forth trading close to its previous early lows, the USD Index is showing strength.

Truth be told, saying that it’s just showing strength is like saying that the Fed printed “some” money in the last couple of years. While true, it doesn’t convey the full picture, either.

The way in which the USDX soared this month is very important because we have pretty much all the bullish confirmations that we could get.

• Breakout above a major, medium-term resistance line? Check.
• Verification of this breakout by a small move back to the previously broken line? Check.
• At least three daily closes above the previously broken line? Check.
• The rally then continued? Double check. It’s even rallying as I’m writing these words!

Right now, the USD Index moved above the late-March highs, and it seems that the broad bottom that I’ve been writing so long about is finally over.

Of course, unless one has years of experience in this profession, it’s very difficult to stay on the course. People tend to just look at the recent past and then assume that it will be repeated.

This way, a decline – that has already happened and is a thing of the past! – is somehow “bearish” (which relates to the future!), and a rally – that already happened and is a thing of the past as well – becomes something “bullish” (again, this is not about the past, but about the future!).

The above tendency, plus the stage in which the market is in, creates a dangerous situation for many investors – getting swayed by popular opinion. And you know what? Specialists, insiders, and professionals tend to make money on the markets, but so called “investment public” doesn’t necessarily do so. The latter panics exactly at the wrong moments, and they also tend to buy at the wrong moments. Everyone’s excited at the top, and everyone’s scared at the bottom. Remember how bitcoin was super-risky at $15k? ;) Remember how silver was headed to the moon at $50? While the latter is probably indeed going to soar in the following years, I wouldn’t necessarily bet on the former’s success, but that is another discussion.

The point here is: “following the herd” is usually not a good strategy.

It’s not a strategy at all.

Just like looking at a previous decline or rally and saying that it’s bearish or bullish, respectively, is no analysis at all.

But we’re all human, and humans are emotional. And each of us will make those emotionality-based errors from time to time. As far as markets are concerned, the more experience one has and the more time they dedicate to this craft (and focus on themselves!), the more objective they can become, and over time, it’s likely to translate into greater profits.

So, what to do, if one got waaaay too excited about gold’s rally? And maybe bought close to the top?

On the emotional level, it’s best to just forgive oneself and accept that it stemmed from an inherent part of human nature and that next time one will strive to be more objective – perhaps through more detailed analysis. And that’s it. Accept it, let it go, and focus on what you can do next. Because as far as markets are concerned, there’s always the next trade (just as there’s always the next train on a train station).

Let’s see what’s available in the golden store right now.

Right now (at the moment of writing these words), gold just pierced through the early-2023 high. And yes – that IS a big deal.

It’s not surprising at all, given the recent weekly shooting star reversal candlestick, but I already wrote about it multiple times, so I’ll just focus on the short term today.

It is not a decline itself that makes the current situation bearish. It’s the entire context in which that decline materialized.

Gold is very likely to move much lower, but… Just because something is likely to move much lower, it doesn’t mean that it’s likely to move lower in a straight line. There will be periodic corrections along the way.

Will we see one shortly?

Actually, we might.

At this point, it’s not clear if this will be an opportunity to go long gold, silver, and/or mining stocks but we can indeed see some kind of correction either from one of the rising support lines (based on the late-2022 bottom and the Feb. / Mar. 2023 bottoms) or from the 38.2% Fibonacci retracement level.

And given today’s decline of over $20 so far today, we might see a move to those levels very, very soon.

At this point, it’s too early to say if the situation will become bullish enough for me to say that a long position in any part of the precious metals sector is justified, but I’m not ruling out such a possibility.

As you know, I’m not married to a short position in the precious metals sector, and I picked two corrective upswings in 2022. Actually, Sunshine Profits’ old website still features the chart with them (for the record, that last short position was also closed profitably as far as the GDXJ is concerned).

Will we see a tradable rally soon? For now, the jury is out. If we see a combination of particularly bullish factors, I’ll send out an intraday Gold Trading Alert, but I’m not “pressured” to enter the long position here – the medium-term trend in mining stocks (and silver) definitely remains down, so long positions in them are rather risky. We would need to see really important bullish signs in order to open a position against the medium-term trend. Of course, I’ll take many more factors into account other than just looking at the most recent price moves in gold, silver, and mining stocks…

So, for now, the medium-term outlook remains bearish, and the very short-term outlook is bearish too, but the latter could change in the near future (temporarily, but still).

As always, I will keep my Gold Trading Alerts subscribers informed.

Overview of the Upcoming Part of the Decline

1. It seems that the recent – and probably final – corrective upswing in the precious metals sector is over.
2. 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.
3. 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).
4. 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).
5. 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.
6. 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, we recently took profits from the additional FCX trade (right before the trend reversed!) and the current short position in it is VERY profitable as well.

The short position in junior mining stocks is – in my view – poised to become very profitable in the following weeks.

Things might appear chaotic in the precious metals market right now, but based on the analogy to the previous crises (2020 and 2008), it’s clear that gold, miners, and other markets are pretty much doing the same thing all over again.

The implications of this “all over” are extremely bearish for junior mining stocks. Back in 2008, at a similar juncture, GDX’s price was about to be cut in half in about a month! In my opinion, while the decline might not be as sharp this time, it’s likely to be enormous anyway and very, very, very profitable.

If I didn’t have a short position in junior mining stocks, I would be entering it now.

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 $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 to of value can be created through this kind of collaboration :).

Thank you.

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief