What a slide! Almost 6% down in the GDXJ last week – and profitably so! Can it slide further? Yes, but periodic rebounds are bound to happen.
In fact, one appears to be just around the corner.
In fact, #2, I’m editing this analysis after almost posting it, because of what just happened in the pre-market trading. Namely, gold moved above its very short-term support line, and the same happened in the S&P 500 futures. The USD Index invalidated its small breakout above its July high. This means that, while this might or might not be the local bottom, the chances for it are quite high.
And this means that at this moment, a short position in mining stocks no longer appears to be justified from the risk-to-reward point of view.
I don’t think that entering long positions at this moment is justified from the risk-to-reward perspective, and depending on what kind of signals we get this week, it could be that either a long or short position becomes justified from the risk-to-reward point of view. Of course, I’ll keep you – my subscribers – informed.
Here are the charts supporting what I wrote above:
Gold is after an immediate-term breakout. It’s not confirmed, but given the proximity to the previous lows, it could be the case that the rebound is starting right now.
Stocks invalidated their small breakdown below the mid-June lows, and they broke above the very short-term resistance line. This is bullish for the near term.
The USD Index invalidated the breakout above the July high, and while it didn’t break below the rising support line, it seems this move lower could happen any hour now, as this line is so close.
That’s as far as bearish (for gold and stocks) and bearish (for the USD Index) factors are concerned. Now let’s take a look at the opposite side.
The GDXJ just dipped below $32, but it is still notably above the 61.8% Fibonacci retracement level and the March low.
The RSI based on this ETF is close to 30, and while it’s close enough to trigger a rally, we might also see another small mover lower before the rebound takes place.
Consequently, the above chart suggests that the GDXJ is close to its short-term bottom and might be in after another small decline.
Let’s keep in mind that the GDXJ is likely to show strength relative to gold right before a buying opportunity. So far, we haven’t seen it – miners declined much more than gold did.
Zooming in shows something similar.
Remember when I commented on the above chart in the middle of the month? On August 7, when the GDXJ jumped up in the aftermath of the below-expected payroll statistics, I wrote the following:
Zooming in shows that the GDXJ simply moved back to the previous intraday lows and then moved back down. This is something that is a completely normal phenomenon during bigger declines. I marked two previous cases when we saw something like that with green lines.
And let’s keep in mind that the above reflects only Friday’s session – it doesn’t take into account today’s pre-market decline in gold price. Consequently, the real implications are even more bearish.
So, while the nonfarm payroll statistics were once again surprisingly low, it seems that the real implications are bearish despite the immediate-term effect that triggered a quick run-up. Just like what I wrote, the true bearish nature of this even became true last month, and we’re likely to see even more bearish action this month.
I congratulated you on not being caught by the emotional rally last month, and I think that congratulations are due also this time. Friday’s rally was small, but some traders that focus on news only and act on it without digging deeper probably reacted in a way that they will ultimately be happy with. You stayed strong – congratulations.
The history rhymed, and a decline followed the correction marked with the orange rectangle. You were warned, and you didn’t panic, staying on track instead. Congratulations – it was worth it, as the GDXJ declined once again.
What’s next? Based on where the GDXJ formed a local bottom in late May, it seems that we can see another small mover lower before another rally. Back then, juniors moved very close to the previous low (marked with a blue dashed line) and to the lower border of the declining trend channel. Right now, the GDXJ is closer to the upper border of the channel and quite notably above the previous bottom. So, more downsides appear likely in the near very term.
On the bullish side, the side of the most recent move lower is similar to what we saw in the second half of May, so the bottom might be in after all.
The situation is, therefore, rather unclear in the very near term.
It's the same with gold.
Gold price broke below the neck level of the head-and-shoulders pattern and verified this breakdown with the weekly close and three consecutive closes below this line. The comeback below the 50-day moving average is now more than verified.
The RSI is close to 30 but not yet at it, which suggests that another small move lower might take place. However, the emphasis goes on “might”. The RSI is close to 30 and in the last couple of months, that was enough to trigger rebounds. Consequently, seeing one now is not that odd.
Before we look at silver, please note that gold is far from its 2023 lows, while miners are almost right at them. It’s crystal clear that miners are underperforming gold to a big extent.
Why? Because that’s what’s likely to happen at this stage of the cycle. The medium-term move is down, even though gold was “forced” to move higher based on massive post-pandemic money creation and war in Europe. Silver’s and miners’ reaction was limited, showing that this was not yet the beginning of the next huge move higher. The final sell-off is still ahead. We saw this kind of massive weakness in 2008 and in 2012 before the biggest slides of the previous decades. That’s simply part of the dynamics present in the precious metals market.
Actually, given the current environment – with rising interest rates – and given the nature of financing of many companies (with debt), the profitability of mining companies might be severely damaged. This does in particular for junior miners that might have trouble staying solvent as they don’t necessarily produce and sell metals (while they have salaries and interest to pay).
Silver showed some strength recently, but it wasn’t enough to make the white metal move back above the rising, dashed support/resistance line. The breakdown below it was simply verified.
This suggests that the next big move in silver will be to the downside. We might see some kind of short-term corrective upswing during the medium-term decline – similarly to what we saw in May 2022.
Let’s check what kind of performance the USD Index currently supports from the short-term point of view (we already saw that we could see a decline given the immediate-term picture).
First of all, the breakout above the declining green resistance line was more than confirmed, which means that the next big move is up.
The next strong short-term resistance is at the June lows, a bit above 104. Last week’s high was 103.57, which is quite close to this resistance, but it’s far enough to say that this resistance wasn’t reached.
The RSI moved very close to 70, which could be viewed as a sell signal, but on the other hand, we have some space for even higher USDX values in the near term.
From the medium-term point of view, we see that the near-term downside target is still relatively, and stocks are more or less halfway there.
Given that moves that follow consolidations tend to be similar to the ones that preceded those consolidations, seeing a short pause here would seem quite normal.
Consequently, it seems that right now, the short-term situation is too unclear for me to support the short position in the GDXJ, and I, therefore, think that it’s a good idea to take profits from the short position in the GDXJ (at this moment, without waiting for other price levels to be reached). The same goes for all the other positions in the precious metals sector. At the moment of writing these words, the GDXJ is after a slight early-trading decline and is trading at $33.26. Congratulations on the profits from the (unleveraged) position in the GDXJ!
Now, please keep in mind that this is a short-term trade only, so if you planned to focus on the medium-term move only, feel free to keep your position intact, as I don’t think that this is anything more than a short-term corrective upswing within a much bigger decline. It’s your capital, and it’s your decision what you decided to do with it.
Also, I’m keeping the current (additional) short position in the FCX intact.
We’ll likely soon either re-enter the short position in junior miners or enter into a long position.
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You can prepare for the session by watching the intro to the key exercise in the recording of the previous session. The intro starts at about 17:15 and ends at about 36:40.
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), you’ll find more details in the above link
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, but it seems that we might see a notable, counter-trend short-term upswing, and in consequence, I’m closing the short position in the mining stocks, taking profit off the table.
At this point I’m not opening a long position, but I might do it if we see more bullish indications.
In other words, I plan to “catch” the correction by waiting to re-enter into the short position at higher levels in order to increase the overall gains.
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To summarize:
Trading capital (supplementary part of the portfolio; our opinion): No positions in the precious metals sector.
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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
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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).
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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.
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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