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.
What a slide! What a profitable move for our short positions! What a complete lack of surprise…
At least if you’ve been reading my previous analyses. On Sep. 20, when the GDXJ was trading at $35.87, I wrote (in the intraday Gold Trading Alert) about substantially increasing the size of the short position in it, and it turned out that it was very close to the intraday top. I wrote the following:
“As I wrote earlier today, gold was quite likely to reach its two resistance lines and that’s exactly what just happened. In fact, gold is at this particular price level ($1,966) as I’m writing these words.
And while gold price moved to a new short-term high, the GDXJ moved close to its previous high, but it didn’t even manage to reach it. Instead, junior miners moved to their declining resistance line and stopped their rally there. This relative weakness of miners is yet another sign pointing to lower prices in the following days and weeks.
Consequently, I think that increasing the size of the short position at this time is justified from the risk to reward perspective.
We had limited the size of the position at lower prices, and we are increasing it at higher prices, which means that we are re-entering most of the position at higher prices, which in turn means that we increased the likely profitability of this position. Congratulations!”
Here’s what happened in the following week:
Not only did the GDXJ decline substantially immediately thereafter, and not only did it move below the rising red support line. It actually moved visibly below August lows.
In fact…
The GDXJ ETF has almost reached its 2023 lows! Yesterday’s close was the third-lowest close this year!
Now, if this is the case, one might expect gold to be close to its yearly low as well, right?
Well…
Gold is about $100 above its 2023 low, approximately halfway between its yearly low and yearly high.
Can you see how severe the underperformance of mining stocks is relative to gold? This is an extremely bearish sign for the medium term. We saw the same thing in 2013 before the plunge.
The above chart features two things that I want to emphasize today.
First, the gold futures just closed below their rising support line, which is bearish. The breakdown is not confirmed, so it’s not a strong bearish sign, but it’s there, nonetheless.
The second thing is that I want to emphasize how effective the most recent triangle-vertex-based reversal was. Gold topped right at the intersection of the declining black and rising red line – just as it was likely to. Every now and then, after the market does something unlikely, I’m getting messages from people concerned that the technical analysis is no longer working. It IS working, and it will continue to work because it’s based on people being emotional on the markets and reacting to similar price/volume developments in a similar way. And people won’t stop being emotional anytime soon. Not every price move can be predicted (we’re on a 10-winning-trade streak, though…) but it doesn’t mean that the technical analysis itself becomes obsolete. It doesn’t, and it won’t in the foreseeable future.
Having said that, let’s take a look at the general stock market, as something quite important happened on it yesterday.
The thing is that the S&P 500 index just moved below the neck level of the head-and-shoulders pattern (which is bearish for the following weeks). The other thing is that the index moved to the rising support line, which was its short-term downside target area.
On top of that, we have a reading from the RSI indicator that suggests that a corrective upswing is about to be seen.
The correction doesn’t have to be sizable, though. In fact, it’s quite likely that it won’t be. The head-and-shoulders formations and breakdowns below them have a tendency to be followed by short-term upswings that are then followed by much bigger declines.
At this time, the rally could be as small as a move back to the previously broken neckline at about 4,350. This could trigger a corrective upswing in the precious metals sector, but it doesn’t have to be anything to write home about.
Also, let’s not forget about the USD Index, which is a more important driver for gold prices. In short, my yesterday’s comments on it remain up-to-date (in fact, the USDX moved higher in tune with them):
The RSI indicator (upper part of the above chart) is well above the 70 level, which indicates a very overbought situation. There were times when the indicator got even more overbought before correcting, though.
Interestingly, the times, when RSI for the USD Index got so extremely overbought were not necessarily times when gold bottomed. When you look at the vertical red lines, you’ll see that once (March 2022) gold even topped at that time. There were times when gold bottomed (last September), and there were also times when then gold declined a bit more and corrected only after that extra move lower.
Now, given that the USD Index just closed above its previous 2023 high, it could be the case that it has some more rallying to do, before it corrects. After all, breakouts to new yearly highs are easily noticeable by everyone, and it’s easy to see people getting excited (and bullish) by this development.
Remember when I told you that an invalidation of the breakdown below the yearly lows was a bullish development of significant importance? It then took only a few months for the USD Index to move from yearly lows to yearly highs.
Anyway, let’s keep in mind that the USD Index has a tendency to reverse close to the turn of the month. The latter is just several days away, so it could be the case that the USDX keeps on rallying as the precious metals sector declines now, and they all correct close to the beginning of October.
Will this correction be tradeable? We’ll see when we get closer to it. Of course, I’ll keep my Gold Trading Alert subscribers informed.
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If you’d like to participate in my Mastering Multidimensional Wealth | 1:1 Coaching Experience (perhaps by re-investing some of your profits into yourself), or become a partner/investor in Golden Meadow, you’ll find more details in the above links.
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 the 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!
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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: $26.12; 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: $12.18; 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: $10.38 (stop-loss: none)
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the exit price: $18.87 (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
