Briefly: in our opinion, no speculative short positions in the precious metals sector are justified from the risk/reward point of view at the moment of publishing this Alert. I’m adding an entry level for shorting the GDXJ ETF.
Some might consider an additional (short) position in the FCX.
The price of gold soared once again yesterday, but there are important signs suggesting that this rally is close to being over.
The current action in the precious metal sector continues to be determined by the increasing concern/interest in war, so that’s what I’m going to start today’s chart analysis with.
The below chart features the interest in war in Google News in the U.S.
The current situation is analogous to what we saw right before and right after the Russian invasion in 2022.
Now, since the market generally “buys the rumor and sells the fact”, gold is rallying primarily based on increasing fear or uncertainty, which is connected to, but no the same thing as actual events.
This concern can be measured by how frequently the term “war” is being searched in Google (in particular, in Google News – this part of Google’s service is used to get… well, news, which helps to isolate the concern with the current conflict).
The key thing that is happening this week is that after last week’s peak, it seems that this week’s interest is about to decline a bit. We still have just partial data as the week is not over yet, but it’s enough to see how analogous the situation is to the Feb 27 – Mar 5, 2022 week.
And guess what happened in gold at that time…
Just a brief gold price analysis reveals that it peaked but not exactly when the concerns did. Gold price continued to move higher after that lower-interest week for a few more days, and then it topped.
This is in tune with what I’ve been expecting the precious metals market to do right now – to move higher in the short run but then top and resume its medium-term downtrend.
As you can see on the above chart, gold is currently soaring – just like it’s been soaring back in early 2022. If it is to continue to rally for a couple of days, it could move close to the $2,000 level before topping, providing a great shorting opportunity (we took profits from the previous short position before this rally picked up pace).
This would make the current rally symmetrical to the early-2023 decline, and it would make the entire 2023 (so far) one big head-and-shoulders pattern. Of course, that pattern would need to be confirmed by gold’s decline, but we already know that this is likely to happen based on the current sentiment analysis.
The triangle-vertex-based reversal is due in several days, so gold might indeed have some room to rally.
Interestingly, gold moved higher despite the fact that the USD Index moved higher, too.
Why did this take place? Because both gold and the U.S. dollar are viewed as safe-haven assets, and given the concerns regarding war in the Middle East, both are bought.
Whether the USD Index moves lower from here or higher doesn’t necessarily matter, as investors’ focus is on something else. Once the “war concern” peaks and then declines, in all likelihood, the USD Index will once again become an important driver of gold prices.
For now, the outlook for gold remains bullish, but it’s likely to change soon.
While gold moved higher, silver rallied too but we didn’t see a massive outperformance of the latter.
This means that the precious metals sector might not have topped yet, as the white metal tends to outperform the yellow one right before turnarounds.
Now, GDXJ’s very weak performance yesterday might suggest that the top is already in, and… It might be in for the GDXJ, but I still think that we’ll see a move even higher in the near term – or at least back to yesterday’s intraday high.
One of the reasons is the situation in gold that I already outlined above. The second reason is that junior miners’ triangle-vertex-based reversal point is very close, so miners might top before gold does. This is quite likely, as miners are likely to underperform gold close to the top (which we just saw).
Zooming in allows us to see that the GDXJ declined after moving to the rising red resistance line, but it then closed above the declining red support line, thus verifying it as support.
Yesterday’s weak performance of mining stocks might be at least partially explained by the weak performance of the general stock market.
The latter is moving back and forth, and yesterday’s session took the S&P 500 Index 1.34% lower. This movement is around two rising support lines, which makes those moves particularly important.
If stocks break lower from this consolidation, the breakdowns will be confirmed, and the road to new lows will be open.
That’s quite likely to happen within the next days and, if not, then weeks.
If stocks decline but gold rallies, we might see some erratic performance in mining stocks – similar to what we saw on Wednesday. In this case, miners could rally on the intraday basis once again and then decline before the closing bell.
The important thing is that all this is short-term smoke and mirrors. The medium-term trend remains extremely bearish, and even a brief look at world stocks confirms that.
The situation right now is just like it was in 2008, right before the enormous, very volatile slide. The price itself (its shape) and RSI confirm that. The implications for mining stocks (visible on the lower part of the above chart) remain extremely bearish. The main difference between the two situations is that this time, miners start from much lower levels (even though gold is much higher).
Also, while we’re focusing on the big picture, let’s take a look at what the junior mining stocks are doing from the really long-term point of view.
Enter the Toronto Stock Exchange Venture Index. That’s also a proxy for junior miners because so many juniors are included in this index.
In short, the index is in a freefall. Juniors plunged after the breakdown below the rising, long-term support line that happened earlier this year. The same happened in early 2013.
The mining stocks then declined in the medium term while correcting every now and then. That’s exactly what we see now, and it puts the current move higher in the proper perspective.
This is not a change in the big downtrend – it’s part thereof.
From the long-term point of view, the analogy in gold between now and 2013 remains intact, with the small exception that the current rally includes a war-premium bonus, so it’s natural that it’s bigger than the previous ones and somewhat bigger than the ones that we saw in 2013.
And since it seems that the peak fear is already behind us… The rally is likely to start reversing soon. In consequence, the link between 2013 and now is likely to return with full force, pushing gold prices lower.
Meanwhile, copper moved a bit higher recently, but very insignificantly so. It remains below its rising resistance line, and since the breakdown below it was already confirmed, the outlook remains bearish.
The same goes for the big copper and gold producer – FCX. It corrected a bit after breaking below the rising, red resistance line, but the breakdown wasn’t invalidated. The outlook remains clearly bearish.
What does it all mean for the precious metals market? That the extremely bearish outlook remains in place for the medium term, and thanks to the bullish outlook for the very short term, it seems that we’ll be able to re-enter our short positions at higher levels, which would imply increasing our overall profits from the medium-term decline.
Since the GDXJ is above our previous exit price, the above seems very likely.
As always, we’ll keep you – our subscribers – informed.
===
If you’d like to become a partner/investor in Golden Meadow, 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 based on the possible escalations of the conflict in the Middle East and the current sentiment, it seems that we might see an additional upswing in the near term but a bigger decline later.
In other words, the extremely bearish outlook remains in place for the medium term, and thanks to the bullish outlook for the very short term, it seems that we’ll be able to re-enter our short positions at higher levels, which would imply increasing our overall profits from the medium-term decline.
As we’re likely getting close to the tops, in my opinion, placing entry orders for the short position in the GDXJ seems justified from the risk to reward point of view.
When GDXJ moves to $35.57, I think that (automatically, without an extra confirmation from me) opening short positions in the GDXJ will be justified from the risk to reward point of view. If someone seeks leverage (this is not necessarily the best idea for most investors), then the analogous price level for the JDST ETF is $6.67.
===
Finally, please note that we just took profits from the 11th profitable trade in a row, which is not a small feat – congratulations! And since we’re likely to re-enter our short position at higher levels, this year’s profits are likely to grow even further! Please keep in mind that the possibility of extending your subscription for up to three years (at least by one year) with a 20% discount from the current prices is still open.
Locking in those is a great idea not only because it’s the perfect time to be ready for what’s next in the precious metals market, but also because the inflation might persist longer than expected, and prices of everything (including our subscriptions) are going to go up in the future as well. Please reach out to our support – they will be happy to assist you and make sure that your subscription days are properly extended at those promotional terms. So, for how many years would you like to lock-in your subscription?
To summarize:
Trading capital (supplementary part of the portfolio; our opinion): No speculative in the precious metals market are currently justified from the risk to reward point of view.
///
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
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.
===
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 ton of value can be created through this kind of collaboration :).
Thank you.
Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief