The precious metals sector declined once again as the points that I made yesterday were immediately confirmed by the market.
The precious metals sector declined once again as the points that I made yesterday were immediately confirmed by the market.
Gold moved significantly lower, as did silver and mining stocks. If you haven’t read my yesterday’s analysis, I strongly encourage you to do so today, because it emphasizes the key thing (real interest rates!) that is likely to push gold much lower.
And as the rates move up, the stock market is likely to move lower too (the cost of borrowing increases for – often over-indebted – businesses as well as for consumers), which would put enormous pressure on mining stocks – especially junior mining stocks, to move lower – most likely much lower.
In fact, the manner in which they slide could be breathtaking. Remember 2020? Or 2008? That’s when gold stocks plunged along with stocks, and it was… Total carnage. Back in 2020, the world got scared of pandemics and lockdowns, while in 2008, it was the subprime crisis that triggered the stock market declines. This time, the dramatic increase in interest rates combined with the previous pumping of prices by money created through various stimulus programs is likely to cause it.
Either way, the future of mining stocks looks scary. Fortunately, there are ways for one not only to avoid the carnage but to actually profit from it. In my opinion, profits could be big, enormous, and then plain ridiculous.
Now, just because the market is likely to move in a given direction doesn’t mean that it will move there without periodic corrections. The current moves lower in gold, silver, and mining stocks are going to include counter-trend moves as well.
In the full version of today’s Gold Trading Alert, I’m covering not only the price target for the junior mining stocks (GDXJ), but I’m also elaborating on the likely near-term reversal date (hint: it’s this month!). In the free analysis below, I’ll focus on gold.
Gold just moved to its 38.2% Fibonacci retracement, and while this move could trigger a rebound… it’s unlikely to be anything to write home about. There are a few reasons for it, and one of the most important is that the recent upswing was quite similar to what we saw in early 2022.
This is the case as both moves were preceded by similarly big upswings and similar action in the RSI, and the final pre-slide top even formed at relatively similar price levels (close to $2,000).
The 2022 decline took gold below $1,700, and I think that this decline will take it below $1,700 as well (probably below the 2022 lows as well). However, the first meaningful corrective upswing started from below $1,800.
Is there a good reason to expect gold to form a short-term bottom close to $1,800?
Yes!
That’s where we have the 50% Fibonacci retracement based on the recent upswing (approximately), and it’s close to the mid-November high as well as the late-2023 intraday lows.
Moreover, please note that back in 2022, gold kept declining until the RSI based on it touched 30. Given where gold and gold-based RSI are right now, it seems that they would both need to move a bit lower in order to match the 2022 analogy.
Since the 38.2% Fibonacci retracement level was just reached, the next serious support is provided by the 50% retracement – which is right next to the psychologically important $1,800 level.
So, will gold bottom at $1,800 or close to it? It seems quite likely.
Will this be the final bottom? It seems very unlikely given how high real interest rates have rallied recently and how far they are likely to rally in the future.
Will there be no other corrections before gold hits $1,800? It’s unclear – we might see a rebound right now given that the 38.2% Fibonacci retracement was reached, but it’s unlikely that this rebound would be big enough for most people to really care about it. Remember the late-April and early-May 2022 corrections? We might see something of similar size and length.
All in all, while the biggest opportunity lies in the junior mining stocks right now, it seems to me that gold is likely to provide us with a decline that also might be useful for those who choose to position themselves accordingly and benefit from this move.
Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim targets for gold and mining stocks that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.
Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief