Briefly: in our opinion, full (300% of the regular position size) speculative short positions in junior mining stocks (GDXJ) are justified from the risk/reward point of view at the moment of publishing this Alert.
Some might consider an additional (short) position in the FCX.
This year-end is rich in reversals in gold. And yet, so many people fail to see them, blinded by bullish bias…
The most recent one formed… Yesterday. And the previous one on the previous trading day.
In both cases, gold made attempts to break above the rising resistance line, and both attempts failed.
Gold price’s inability to break back above this line and shooting star reversal patterns are both bearish.
Today, gold is making another attempt to move above this line, and it’s likely to fail once again.
None of those reversals is the key one, though. The key one is the one that we saw over 2 weeks ago on a weekly basis.
The turnaround was massive, and it created the key context for everything that followed. Last week’s and the previous week’s rallies? That’s just a rebound after the huge decline from the intraday top. We saw the same kind of rebounds after previous similar reversals, so why should this time be any different? It’s not.
I already wrote about the above-mentioned reversal on Friday, so in today’s analysis, I’d like to emphasize one important thing about it.
Namely, please note where gold recently corrected and what happened in the analogous cases.
Last week, gold almost touched its 61.8% Fibonacci retracement level, and it closed the week close to the 50% retracement. This is important because in both previous cases, when gold corrected above the 50% retracement based on the size of the initial decline, it meant that the final top was in.
In the first case (2022), gold topped slightly below the 61.8% retracement, and in the second case, it topped slightly above that retracement. Last week’s top right below the 61.8% retracement perfectly fits the analogy to the first case.
What does that mean? It means that the top is most likely in. Of course, history doesn’t have to repeat itself to the letter, but the above very strongly implies that there will be no significant rally from here, and that we’ll see a significant decline, instead. Seeing a small rally – like today’s pre-market upswing – is a different thing – it doesn’t change the pattern, it’s a part thereof.
Let’s check the situation in gold’s sister metal – silver.
Silver price did again.
The white metal once again tried to move above its early-2023 highs. And once again, it failed, which was followed by a decline.
All previous attempts to break above this level were followed by declines, so it’s likely that we see lower silver prices shortly. This is especially the case that silver seems to have topped right at the rising, dashed resistance line. This makes declines from here even more likely.
- So, when will those declines finally take place?
At this time, I wouldn’t be surprised to see them really begin early next year. The reason is that they are quite likely to be correlated with the declines in the general stock market (note: Paul is preparing to take profits from his long positions in stocks), and… Wall Street pros want their yearly bonuses, don’t they?
As the performance is often assessed in yearly terms, and most funds/asset management companies are invested in stocks (and are not shorting them), it’s in their best interest not to see significant slides before the end of the year (three more sessions including today’s one). Once we have the final yearly price, it seems that the prices of stocks can “be allowed to” slide. And the same goes for the prices of precious metals and mining stocks.
Also, in my yesterday’s analysis, I focused on people’s increased interest in buying gold, and since this will continue to be relevant for many days, and I don’t want you to miss it, I’m quoting it below:
Have you considered buying gold recently? Like to the point of searching for it online?
Because many people have.
As you can see on the above Google Trends screenshot, the searches for “how to buy gold” just soared, and it’s not the first time that it happened.
Makes one wonder… What happened to gold price in those other cases?
After all, whatever circumstances triggered this jump in the interest in the topic, they are taking place all over again. I don’t mean the state the world is in – I mean the sentiment among gold investors. By estimating the latter, we can also estimate what’s likely to happen to the price, because… The history tends to rhyme, and people’s emotional reactions to what the market is doing remain more or less the same, regardless of the details of the fundamental situation.
I marked one of the moments on the above chart and here are the other notable peaks:
So, what happened to gold price on those occasions?
I marked all-above-mentioned cases with blue, dashed lines and in three out of four cases those were the MAJOR tops. Ones that were followed by hundreds-of-dollar declines in the price of gold.
The only remaining case was when it was still the end of a short-term rally and the start of a pause (that took gold about $100 lower, anyway). This time was truly exceptional, though, because it was right after the covid-scare bottom – it was not a regular course of action.
So, I’d say that in all “regular” cases, the huge increase in interest in buying gold translated into huge declines in the following months. After all, people tend to buy at the tops – that’s exactly what this sentiment analysis proves.
We are at this stage one more time (in many other stocks, too, including some oil stocks). Once again, it’s difficult NOT to buy into the euphoria, even though looking at the situation from a broad perspective practically “screams” WATCH OUT.
Now, you are informed, you are prepared.
And I will continue to keep you – my subscribers – up-to-date, so that what surprises most investors, will not surprise you, but that it will benefit you. We’re on a streak of 11 profitable (unleveraged) trades, after all, and it’s VERY likely that the current trades will increase this streak soon.
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On a side note, the two previous links will take you to the latest free oil and stock market articles, but if you’d like to check out their premium versions, there are currently 7-day free trials available for both of them (note: they were both revamped, so I really encourage you to give them a go). Since there’s still a 10% discount for the Diamond Package (including Gold-, Oil-, and Stock Trading Alerts), the best course of action would be to take both free trials and if you like what you see, upgrade to Diamond before the 7 days pass, to reap the extra discounts (one is the regular bundle-offer discount, and on top of that there’s the above-mentioned 10% one. For maximum benefits you could go with a yearly subscription or a longer one, though.) Sign up for those free trials here: Oil Trading Alerts - free trial and Stock Trading Alerts - free trial.
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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
Q: I truly enjoyed reading your analytical insights and I use it for my xauusd spot trading, but one thing that I have noticed this year, is just as gold is a safe haven commodity, it seems that the USD is behaving as a safe haven assist when compared to other currencies….but I believe there's an inverse relationship between WTI/XTI and XAU. When oil prices go up, gold goes down…AM I far off on this observation?
A: Indeed, both: gold and the U.S. dollar can – and do – act as safe-haven assets. At times, the spotlight is on gold, and at other times, it’s on the USD, which can create erratic price moves in the short run. Remember the early-2020 volatility?
As far as the link between crude oil and gold is concerned, the situation is… Complex. Years ago, I wrote a big research paper on that topic, and you can access it using the above link, but to make a long story short, there is no reliable long-term link between the two.
The situation gets more interesting over shorter-term periods. The thing is that every now and then, gold and oil move together, and sometimes they both move in opposite directions, which means that at times, one can draw conclusions for one of those markets based on the other.
The above chart features crude oil (the baseline) and gold (the orange line), and the bottom part thereof features the 20-day correlation coefficient based on both. When it gets close to 1, it means that both markets move together, and when it gets close to -1, it means that both markets move in opposite directions. The closer to 0, the less link there is between crude oil and gold.
As you can see, there were different periods. In 2022, both fell together most of the time. This year, both markets moved in the opposite directions most of the time.
The link, however, is too weak and too unstable for me to make forecasts for one market based on the other right now.
Both: precious metals (in particular, junior miners) and crude oil (including oil stocks) offer specific trading opportunities, and I’ll continue to focus on the former. If you’re interested, you’ll find more about the latter in Anna’s Oil Trading Alerts (you will find her latest free analyses here).
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Summary
To summarize, the key thing about the precious metals market is still gold’s extremely important weekly reversal that we saw two weeks ago, which puts the recent (even today’s) rallies in the proper context. What we see now is a perfectly normal post-initial-decline rebound. These moves used to take gold back up to the 50% - 61.8% (approximately) retracements based on the initial size of the decline, and given today’s upswing, gold futures are now a bit above the 50% retracement. Again, this is normal.
The invalidation and reversal that we saw in junior miners, as well as gold’s own reversal, suggest that the top is in.
The peak in interest in “how to buy gold” searches makes the current situation even more bearish, as this has been a very accurate detector of massive, medium-term tops.
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As we’re on a streak of 11 profitable (closed, unleveraged) trades, and – just like I wrote today and in the previous days – it looks like we’re going to see many more of them in the near future, I want to provide you with even more great news!
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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?
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To summarize:
Trading capital (supplementary part of the portfolio; our opinion): Full speculative short positions (300% of the full position) in junior mining stocks are justified from the risk to reward point of view with the following binding exit profit-take price levels:
Mining stocks (price levels for the GDXJ ETF): binding profit-take exit price: $28.12; stop-loss: none.
Alternatively, if one seeks leverage, we’re providing the binding profit-take levels for the JDST (2x leveraged). The binding exit level for the JDST: $10.54; stop-loss for the JDST: none.
For-your-information targets (our opinion; we continue to think that mining stocks are the preferred way of taking advantage of the upcoming price move, but if for whatever reason one wants / has to use silver or gold for this trade, we are providing the details anyway.):
Silver futures downside exit price: $20.22 (stop-loss: none)
SLV exit price: $18.62 (stop-loss: none)
ZSL exit price: $24.98 (stop-loss: none)
Gold futures downside exit price: $1,812 (stop-loss: none)
Spot gold downside exit price: $1,792 (stop-loss: none)
HGD.TO – alternative (Canadian) 2x inverse leveraged gold stocks ETF – the exit price: $8.43 (stop-loss: none)
HZD.TO – alternative (Canadian) 2x inverse leveraged silver ETF – the exit price: $19.49 (stop-loss: none)
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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.
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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.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
