Gold Trading Alert #2

The GDXJ moved above our protective stop-loss levels, which means that the short position in it was closed. In other words, we took profits from that position, as it was entered when prices were above the current levels. That’s 11th profitable trade in a row. Congratulations!

Of course, if the GDXJ had declined more now, and we were closing the positions at about $28, the profits would have been bigger. But guess what – the GDXJ is still likely to slide to those levels (and below them), which means that we are still very likely to reap those profits, as long as we get back on the short side of the market soon.

The only difference is that thanks to closing the position now, we are a) limiting the risk and b) we are splitting the profits from this huge medium-term decline into fewer smaller profitable trades rather than getting them based on one big trade.

And speaking of getting back on the short side of the trade, we might do it soon.

One scenario is that we could get back on the short side of the market, if the GDXJ reverses in a profound manner and/or it underperforms gold to a significant extent and/or silver outperforms gold to a considerable extent. This might happen any moment, even today, which (in combination with the extremely bearish outlook for the medium term, and the fact that the) is why I’m not opening long positions here.

Another scenario is that if miners continue to rally for about 1.5 weeks and we see a move above 50 in the RSI.

Gold Trading Alert #2 - Image 1

The latter (move above 50 in the RSI) implied local tops quite frequently in the past. The former (the date around October 20) is where we have the next important triangle-vertex-based turning point. If miners continue to move up to that moment (or they consolidate but not decline beforehand), they will be likely to reverse and decline once again, simply because it will be “time” for them to do so.

Another reason to be on a lookout for bearish confirmations from the precious metals sector is the situation on the stock market. The S&P 500 Index tried to move above the neck level of the head-and-shoulders pattern but failed to do so. This means that the decline in stocks is likely to resume shortly. Such a decline could drag the precious metals sector lower.

Gold Trading Alert #2 - Image 2

So, right now, we’re not featuring any short positions in the precious metals sector (this invalidation also affected the outlook for gold and silver), but we’ll likely return to it soon.

At the same time, the additional, optional short position in the FCX remains intact (in fact, FCX declined today).

As always, we’ll keep you - our subscribers - informed.

Thank you.


Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief