Now do you believe me that focusing on the “easy” part of the rally in junior miners was the way to go? :)
In yesterday’s analysis (after GDXJ closed at $31.12 – mere $0.10 above the entry of our short positions), I wrote the following below this chart:
Namely, while the GDXJ (upper part of the chart) moved only a little above its recent high, silver has pretty much doubled its previous short-term upswing.
To be clear, neither of those moves higher was substantial. However, it is the relative performance that matters from an analytical point of view.
As I have emphasized many times before, miners tend to underperform gold close to tops, while silver tends to catch up. That’s something that we saw on Friday.
While it doesn’t guarantee that the top is already in, it does indicate two important things:
- It’s likely that the top is just around the corner (or it’s already in);
- The easy part of the rally was indeed most likely over on March 1, when we took profits from the recent long position.
In terms of resistance levels, the SLV ETF (a proxy for silver) hit the upper border of its recent price gap, while gold and silver haven’t moved to their next important resistance levels. They did move above the previous resistance levels and made a one daily close above them. This means that the small (very small, in the case of the GDXJ ETF) breakout is not confirmed at this moment.
Instead of being confirmed, the very small breakout in junior miners was invalidated.
Actually, to say that junior miners were weak yesterday is like saying that the Fed printed “some money” in the last decade. It isn’t a lie, but it doesn’t convey the full truth either.
Yesterday’s relative performance of junior mining stocks was a disaster and a crystal clear bearish confirmation. This is the main reason why I once again increased the size of the short position in this sector.
The GDXJ ETF not only invalidated the breakout – it closed at a new monthly low!
This, plus the fact that it happened without as much weakness in gold and silver, makes it particularly bearish, as it’s something that we see before bigger declines.
- All right, PR, but what about the stock market? Maybe stocks were particularly weak yesterday, and that caused miners to be so weak?
The thing is that stocks didn’t decline yesterday, so the above-mentioned explanation doesn’t apply.
Despite the tiny rally in terms of daily closing prices, we actually saw a clear reversal. Based on the analogy to the previous case, when the RSI had previously been trading at about 70, it seems that this is just a counter-trend bounce before the bigger part of the slide – we saw something similar in August 2022, and stocks declined profoundly shortly thereafter.
This, plus the fact that stocks reversed close to their previous (Sep., Dec. 2022) highs, makes the short-term outlook for stocks bearish.
So, while the miners declined without a bearish push yesterday, they are likely to get one soon and… decline even more!
Gold and silver are down in today’s pre-market trading, so it’s quite likely that the GDXJ will continue its slide today.
On the other hand, even if the GDXJ pauses here, it won’t change much – a pause after such a dramatic underperformance would not be surprising.
- Surely, the USD Index soared yesterday to trigger such a big decline in junior miners, right?
Nope.
The USD Index moved slightly lower yesterday.
This means that junior miners didn’t really have a good reason to decline yesterday. And yet they did.
Please remember this day whenever you want to ask a question like “what needs to happen for miners to decline/rally.” The answer always is that nothing needs to happen – they can decline or rally on their own, based on just technical reasons. Simply because their correction is already over and they can continue their previous trend.
If something happens, the consolidation might end sooner or later, but nothing needs to happen for the markets to move.
So, what does this all mean?
It means:
Buckle up! The profits increased, but they are most likely nothing compared to what’s ahead!
Overview of the Upcoming Part of the Decline
- It seems to me that the corrective upswing is over or about to be 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 – perhaps with gold prices close to $1,500 - $1,550.
- 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), and 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, after all), so that more people can contribute to the reply and then enjoy the answer. Of course, let’s keep the target-related discussions in the Gold Trading Alerts space.
Summary
To summarize, in my view, the real interest rates are up and about to soar higher, the USD Index most likely bottomed and is likely to soar, while the precious metals topped (or at least the easy part of the rally is over) and are now likely to slide – either shortly or soon enough.
The corrective upswing was rather quick and quite lucrative, given that the capital was used for it for just a few trading days. Let’s not forget that we were able to re-enter the short positions at higher levels, so the benefits are actually even bigger than they seem at first sight. Congratulations once again!
It seems that the short-term top is in or at hand. Based on juniors’ dramatic underperformance, I’m increasing the size of the current short position.
As a reminder, we still have a “promotion” that allows you to extend your subscription for up to three (!) years at the current prices… with a 20% discount! And it would apply to all those years, so the savings could be substantial. Given inflation this high, it’s practically certain that we will be raising our prices, and the above would not only protect you from it (at least on our end), but it would also be a perfect way to re-invest some of the profits that you just made.
The savings can be even bigger if you apply it to our All-inclusive Package (Stock- and Oil- Trading Alerts are also included). Actually, in this case, a 25% discount (even up to three years!) applies, so the savings are huge!
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If anything about the above is unclear, but you’d like to proceed – please contact us anyway :).
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 (the volatility is too big to justify a stop-loss order in this particular trade).
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 (the volatility is too big to justify a SL order in case of this particular trade).
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
SLV profit-take exit price: $16.73
ZSL profit-take exit price: $32.97
Gold futures downside profit-take exit price: $1,743
HGD.TO – alternative (Canadian) 2x inverse leveraged gold stocks ETF – the upside profit-take exit price: $10.97
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the upside profit-take exit price: $25.47
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.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief