Gold declined today and the intraday low (so far) is $1,688.05.
I previously wrote that when gold moves $1,693 we’ll be closing any remaining short positions, and when gold moves to $1,692, we’ll automatically open long positions in the miners.
Given gold’s move below $1,690, both above took place. The short position in the GDXJ (and/or long in JDST) has been closed, and new long positions have been opened.
To be precise, we view opening a new long (regular size) position in the GDX ETF as justified from the risk to reward perspective.
Alternatively to GDX – if one seeks to gain leverage, one might consider going long NUGT (2x leverage) or GDXU (3x leverage – not recommended for most due to the significant leverage, but might be interesting tool for more advanced traders).
We don’t have a stop-loss order for this trade, and I currently see $33.92 as the likely short-term target. In case of the NUGT, the target is $60.92, and for the GDXU it’s $18.92.
While there are no certainties in any market, including the precious metals market, today’s price action on the precious metals market made the counter-trend upswing even more likely than before.
Gold moved back up after touching its 61.8% Fibonacci retracement based on the entire 2020 rally, so a very important target was already reached.
Mining stocks are showing strength today. Even though gold moved visibly to new yearly lows, GDX didn’t move to new intraday lows. The GDXJ did move to new intraday lows, but the decline was relatively small compared to what happened in gold and to what happened on the general stock market. The latter declined substantially today and GDXJ is more correlated with it than GDX – hence GDXJ’s underperformance was normal. Still, compared to both: gold’s decline and stocks’ decline, GDXJ and GDX declined very little today.
While gold miners showed strength today… Silver plunged over 4%. I previously wrote that silver tends to catch up during the final part of the move, while miners lead it. Today’s relative action showed that this is indeed the final part of a short-term decline in the precious metals sector, and that we should now expect a corrective rebound, before the medium-term decline resumes.
Gold futures were trading below $1,692 for about 10 minutes, so if you acted as I had outlined it in the Gold & Silver Trading Alerts, you made your purchases then. The GDX ETF was trading approximately between $30.80 and $31 (NUGT was approximately between $49.30 and $50) at that time – this seems to have been the exact daily bottom. At the moment of writing these words, gold futures are trading at $1,697, GDX is at $31.51, and NUGT is at $51.58. If you followed my previous insights to the letter, you are already sitting on a nice intraday profit – congratulations on what seems to have been a great entry.
As always, we’ll keep you - our subscribers - informed.
Przemyslaw Radomski, CFA