Good news, everyone! Buying GDXJ right after taking profits from the previous short position already proved to be a profitable idea. What’s next?
To be 100% precise, the GDXJ rallied by a little over 10 cents after the buy Alert, but still – that’s what happened. Given that the precious metals are no longer declining in today’s pre-market trading (in fact, the GDXJ is slightly up in today’s pre-market – London – trading even though the GDXJ did end the day in the red in the U.S. markets), it seems that we won’t have to wait for long for profits to increase. In fact, we might not need to wait at all.
Let’s take a look at the GDXJ’s chart for details.
The vertical orange lines mark the situations when the RSI started to decline from very high levels (close to 70) and then dropped to 30 or close to it. In all four of those cases, we then saw short-term corrective upswings. That happened in September 2020, June 2021, December 2021, and April 2022, and all these rallies materialized during a medium-term downswing, so these were the theoretically-hard-to-catch rallies. This makes the performance of this indication quite impressive.
We saw the same indication on Friday.
Also, the MACD (lower part of the chart) moved below -1, which confirmed the start of the corrective upswings in two cases that are most similar to the current situation: June 2021 and April 2022.
You probably already heard or read that history tends to rhyme, but the similarity of those verses is truly uncanny!
Of course, it's not just the GDXJ-based indicators that make the current short-term (!) picture bullish. It’s also the price level that the GDXJ reached. While it didn’t move to the Sep. and Oct. 2022 intraday highs nor the 61.8% Fibonacci retracement, it did move to the intraday November 2022 low and then moved back up before the end of the session. This means that the GDXJ has still moved to the upper border of my target area.
What about gold? Does the situation support higher prices in the near term?
Yes! While the price of the yellow metal itself didn’t reach any important support level – at first glance – the RSI based on gold’s price touched the 30 level. That's what meant local bottoms in the past, and also in May 2022, following a top and decline that are strikingly similar to the current situation.
Please keep in mind that I emphasized the fact that gold did not reach any significant support at first glance. In reality, gold approached the support provided by 2022’s closing price. Gold futures closed the previous year at $1,826.20, and yesterday’s move below that level was the first daily close below it this year. The previous day’s close was $1,826.80. So, if gold invalidates this breakdown (it wasn’t confirmed!) soon (today or tomorrow), we’ll have an invalidation of a breakdown, which will be a buy signal on its own.
Now, since miners tend to show strength before gold does, that seems quite likely to happen. In fact, please note that Friday’s session was when miners already showed strength compared to gold. The GDXJ reversed and moved back up before the end of the day, while the GLD ETF didn’t.
What about the USD Index – one of gold’s key drivers?
It has recently moved slightly above the 105 level and close to its previous 2023 highs. That high – in terms of the daily closing prices – was 104.83. The intraday 2023 high was 105.50, and the USD Index just moved between those levels. So, overall, one could say the previous 2023 high was approximately (!) reached.
This level serves as resistance, and it seems that it would be a good time for the USDX to pull back and prepare for another powerful move up. The RSI close to 70 clearly supports such an outcome as well.
On a final note, a pullback here would create the handle of a bullish cup-and-handle formation in the USD Index that would be a perfect launchpad for a medium-term upswing in the U.S. currency – and a powerful downswing in the precious metals sector.
However, is it 100% certain that the precious metals market has already bottomed?
No. There are no certainties in any market, and one has to be on the lookout for potential invalidations. Fortunately, there are precious-metals-market specifics that help one thrive even despite the uncertainty.
While the risk can never be completely eliminated (and nobody, myself included, can ever guarantee any sort of return), it’s true that around the bottom, mining stocks tend to show strength relative to gold.
This means that even if gold does move lower from here and bottoms close to $1,800, it’s not that likely to trigger a sizable move lower in the mining stocks – maybe something small, but nothing to write home about. Conversely, with just some strength in gold, gold stocks are likely to rally in a significant manner.
If you thought that was the end of the good news, I have a pleasant surprise for you.
After taking a look at the markets once more, it seems to me that the end of the easy part of the rally in the GDXJ is at higher levels than I previously thought – so the profit potential from the current long position appears to be bigger than we previously assumed.
Thank you for reading the above free analysis. The premium analysis I just posted, on which the above is based, continues, and additionally includes a special GDXJ ETF, on which I’m providing the detailed overview of the upside price target. I’m also discussing the strategy for this trade, and I’m featuring detailed price targets not just for the GDXJ but also for the JNUG (2x leveraged proxy for junior miners), silver, SLV, AGQ (2x leveraged proxy for silver), gold, HGU.TO (Canadian 2x leveraged proxy for gold stocks), and HZU.TO (Canadian 2x leveraged proxy for silver).
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Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
PS. Yes, you can share this link with your friends, but be quick, as it provides access only until the end of the week. If you delay, your benefit will be smaller, and you might miss some of the profits from the current long position.