Gold And Silver Trading Alert No.2 from February 24, 2023
In short, I think that closing the current short position in the GDXJ ETF and are taking off the table is now justified from the risk to reward point of view. This closes the traded that we opened back in 2022, and it ultimately prolongs the winning streak of the previous 4 wins in a row – it’s now the fifth win in a row (or course, I mean the GDXJ only, those who used short-term options, or leveraged instruments might have other rate of return).
This trade was not the easiest out there as it required patience (and trust, for which I’m very grateful), but you succeeded – congratulations!
I think that closing the positions leveraged instruments based on the GDXJ ETF is also justified from the current risk to reward point of view.
I also think that opening a small (50% of the regular position size) speculative long position in the GDXJ is justified from the risk to reward point of view. Some might want to use JNUG or other leveraged instruments for this trade, but taking on leverage is definitely not for everyone.
At the moment of writing these words, the GDXJ ETF is trading at $32.90 and gold futures are trading at $1,819.75.
Today’s intraday low in the GDXJ was $32.46, which means that the GDXJ moved to the upper border of the target ellipse that I marked on its chart in today’s (and previous) Gold Trading Alert.
Can the GDXJ and gold move even lower? Yes, especially gold has strong support very close to $1,800, but that’s relatively close to the current levels, and the RSI indicator for the GDXJ just moved below 30, thus flashing a quite reliable buy signal. And the RSI for gold was very close to 30 even before today’s session.
The Core PCE Price Index (important indication of inflation) was higher (4.7% YoY) than expected (4.3% YoY) and higher than it was previously (the report from late January) – 4.6% YoY.
The S&P 500 plunged as well, pushing the junior miners much lower today – in perfect line with what I wrote recently. It reversed during today’s session, though, indicating that a short-term turnaround is quite likely.
The PCE numbers not only way above expectations - that’s actually the first increase in the metric since the late-October release. Does “late October” ring any bells? It should because gold started it’s rally shortly thereafter. So, as the tide seems to have turned, will we now see gold plunging?
Quite likely, but not necessarily immediately so. You see, even in late October, gold first declined and started the rally only thereafter. So, this time, we could see the opposite – a small rally that’s followed by huge declines. Interestingly, that’s in tune with what I’ve been writing about based on chart analysis, anyway! In other words, we have confirmations from quite a few directions.
This creates a good opportunity to temporarily switch in case of our positions – to take profits and enter long positions. Of course, I can’t guarantee any kind of performance in any trade, but this does look like a good opportunity in my view.
The current upside target for the GDXJ is a bit above the $34 level, so my profit-take for this trade is at $34.97 – that seems to be the easy part of this (small) trade. That’s not far from the current levels, so many might not want to participate in a trade that’s so small, but the choice us up for everyone to make on their own.
In case of the JNUG (IF you decide to use a leveraged instrument that is; I’m not suggesting that you do so, I’m simply providing this target as it’s almost always requested due to this instrument’s popularity), the profit-take for this trade is $31.77.
Of course, I might adjust those targets in the following analyses, if PMs show particular strength, or if we see particularly bearish indications from the USD Index.
I’m not using stop-loss levels for this trade (I’m paying attention to many other indications other than price and I will close the position if the risk to reward ratio no longer supports it, regardless of the price), but if you want to use them, feel free – it’s your capital, and you decide what to do with it.
As always, we’ll keep you - our subscribers - informed.
Przemyslaw K. Radomski, CFA