EDIT: I’m sharing today’s Gold Trading Alert with you in its entirety (below), as I don’t want you to miss this entry point.
Monday’s Alert (and any intraday follow-ups that I might add today) will be reserved to my subscribers, though.
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I’m sending today’s analysis a bit later than usual as I wanted to see the market’s reaction after the opening bell, and I’m grateful that I did that as based on what I saw I think that the risk associated with re-opening the short position in the GDXJ is now low enough to justify it.
In other words, I think that a big short position in the GDXJ ETF is now justified from the risk to reward point of view. Please note that “big” means “bigger than usual”, not that you should risk too much – always check if the risk is acceptable for you.
If one can short JNUG, that would be my preferred way of taking advantage of this opportunity.
If not, then going long might be a useful option. Of course, that’s just my general opinion, not individual investment advice.
I’ll provide more specific profit-take levels in Monday’s Gold Trading Alert.
Why are we shorting the GDXJ only a day after we took profits from the long positions in the GDX? There are a few reasons for it, but it mostly revolves around the fact that my original target levels were already reached.
Plus, miners are weak today relative to gold.
Plus, gold rallied based on a geo-political boost (new kind of missile was used by Russia) and those tend to have only temporary effect on the price. Besides, the increase in threat from Russia seems to have been overplayed by the market.
Onto the charts!
I previously described that $38.5 was my original target for this corrective upswing in the GDX and while its slightly lower right now, the intraday high was at $38.57, which means that it was reached.
Am I regretting taking profits off the table yesterday? No. Based on the information that we had yesterday, this was a good decision. We didn’t have to get the geo-political boost today, after all.
Anyway, as the target was reached and miners corrected 38.2% of their previous decline, it seems that the slide can now continue.
Interestingly, while miners were able to correct to just the 38.2% retracement, gold itself corrected more than 61.8%. This shows that overall miners are weak relative to gold, and this is particularly the case today.
Gold us up over 1% and yet both: GDX and GDXJ are down. This kind of relative weakness likely means one thing: the top is in.
Also, the GDXJ rallied to its previously broken rising support line and then stayed below it despite gold’s daily upswings. This is a great confirmation that the top is likely indeed in.
Gold is trying to get above the 61.8% retracement and the $2,700 level (and the previous intraday highs), but I don’t think it will be successful. Miners’ weakness indicates that.
The USD Index soared, and it’s now the highest it’s been in over two years!
After all this time when everyone and their brother kept writing about the death of the dollar and ongoing de-dollarization… I’m not repeating this to brag about being correct on dollar’s rally, but to emphasize this learning opportunity. Extreme bearishness rarely reflects fundamentals – it reflects sentiment. And when everyone gets to one side of the boat – you definitely want to be on the other side.
In yesterday’s Gold Trading Alert, I wrote the following:
During the 2022 rally, some pauses were really small, so it’s possible that this tiny pause is all that we got here as well. Plus, the open interest (pink – magenta? - line) is at the level where we previously saw a similarly small pause in USD Index’s rally – in early April 2024.
Can the USD Index correct some more here? Yes. But it might continue to soar as well. This would not be reliable enough to open a trading position in the USD Index, but… we’re not trading the USD Index. We’re closing a long position as it’s no longer justified from the risk to reward point of view.
Once again, the USDX might consolidate a bit now, or its rally might continue. On one hand, the geo-political effects might subside. On the other hand, the USD Index did just break out above this and last year’s highs, and given this momentum, it could soar even more.
Either way, it seems that the correction in the precious metals sector is over. I wouldn’t be shorting gold or silver right now (ok, if I didn’t have a choice to short miners, I would, but with a smaller position size) because gold can rally given the geo-political concerns, and who knows what kind of rhetoric we’ll hear from the politicians in the following days. And silver can outperform at market tops. Conversely, miners underperform – which is what we have right now.
Once again congratulations on yesterday’s profits, and cheers to the upcoming ones!
Have an awesome weekend.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
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Ready to take your trading to the next level? Crude oil rallied today just as Anna had forecasted in her Oil Trading Alert, and given the current (and upcoming…) volatility in stocks, getting Stock Trading Alerts might be a great idea as well.
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Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief