More Rallies for Precious Metals to Come
Jan. 14, 2025
Briefly: in our opinion, long speculative position in silver and UDN is currently justified from the risk to reward point of view at the moment of publishing this Alert.
In other words, I think that a long position in silver is now justified from the risk to reward point of view.
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In three points:
Miners are strong today – also on a relative basis, suggesting that we’re likely to see higher prices in the short run.
Stocks invalidated their head-and-shoulders pattern, suggesting that another move up is likely for the near term, which could lead to higher PM and mining stock values.
The USD Index just invalidated its move to new highs, which might be the start of another pullback.
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The key news is that stock just invalidated their head and shoulders pattern, and that served as a buy sign.
In yesterday’s analysis, I wrote the following:
Technically, stocks are right after a breakdown below a head-and-shoulders pattern, which is a sell signal. BUT, it’s also true that this pattern tends to be followed by a correction, and this correction might be exactly what is needed to trigger the final upswing in the precious metals sector.
This corrective upswing might start shortly, but the November lows are about 5,700, which is a quite round number, which increases their technical strength.
So, unless I see something profoundly bearish and the above theory is invalidated, I plan to go long silver when the S&P 500 moves to 5,700 or close to it.
The above didn’t materialize, but the invalidation (in intraday terms) of the head-and-shoulders pattern is even more bullish, so the implications are the same – it’s time to go long silver.
Gold, silver, and mining stocks are all up in today’s session, and the remarkable thing about it is how much mining stocks rallied compared to gold. The GDXJ is exceptionally strong today, and this is something that usually signals more rallies around the corner.
Some might want to go long gold or miners, but in my view, betting on silver’s rally provides the best risk to reward ratio here. Of course, there are no guarantees that the history will repeat itself, but the truth is that silver tends to perform particularly well in the final parts of the rallies, not in its initial parts (miners do).
So, the fact that silver (silver futures are trading at 30.41 at the moment of writing these words) itself is not rallying significantly today is another reason to buy it – it’s likely that it’s not rallying YET.
Another reason to expect a rally in the precious metals sector comes from the USD Index.
After touching the 110 level, it moved back below its previous intraday high. This invalidation is a sell signal – and the PMs and miners are already responding to it.
The USD Index could stop close to 108, or it could fall even further based on its 23.6% and 38.2% Fibonacci retracement level. Or it could be the 107 level (2023 highs) that stops the decline.
It’s too early to say which of those levels would be most likely to stop the pullback, but the odds are that the precious metal sector will move higher in the near term, anyway.
Before summarizing, I’d like to feature charts of two assets where we took profits from short positions at the beginning of the year: FCX and NEM.
In short, they both moved up since that time, showing that the decision to take profits then turned out to be profitable.
Interestingly, they both have a bit further to run before encountering their resistance levels and target areas. This further confirms the scenario in which the precious metals (and commodities) move higher in the near term.
How long could this rally last? I’d say that between 1 and 4 weeks, with 1-2 weeks being the more likely time target.
After all, we have the triangle-vertex-based turning point in gold close to Feb. 10
And we have an interesting situation in the tech stocks as well.
Based on the similarity to what we saw in late 2021, it seems that this might be a month that tech stocks end slightly higher than the previous one, and the slide will happen only after that time.
Then again, back in 2021, it was the end of the year, which might have prevented Wall Street from selling massively before the year end so that everyone could cash in nice performance-based bonuses. This time, the previous year is already over, so the history might not repeat itself to the letter.
Overall, I think that it would be best to monitor the precious metals market for the relative performance of miners vs. gold and silver vs. gold. When miners lag and silver outperforms (while gold and USDX move to or close to their targets), we’ll know that the trend is turning. For now, we see miners outperform and silver lag, which is why we’re buying the latter.
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As always, I will keep you – my subscribers – informed.
Overview of the Upcoming Part of the Decline
The more detailed “overview of the upcoming part of the decline” will be back (and updated) once it’s obvious that the top in gold is indeed in and it’s after the initial significant decline. Gold’s top (the same goes for miners’ top) price level is one of the things that I’m basing my downside targets on, and while it this point it IS likely that gold topped, I’d like to see a bigger slide before stating what kind of (more specific) scenario going forward is most likely.
Please note that the chart below features the most likely downside target area in my view (from the medium-term point of view), while the downside target featured in the “Trading” part of the summary features the downside target for the trading position. The latter is likely to be reached earlier, then we might see a correction and then further declines.
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.
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Summary
To summarize, we’re likely to see another corrective upswing in the precious metals sector as well as a corrective decline in the USD Index before the former plunges and the latter soars.
It seems that silver might outperform during this rally, which is why I’m opening a long position in it today.
As always, I will keep you – my subscribers – updated.
Thank you.
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To summarize:
Trading capital (supplementary part of the portfolio; our opinion): Speculative long positions in the following assets are justified from the risk to reward point of view with the following binding exit profit-take price levels:
Silver futures: binding profit-take level: $33.17; stop-loss: none.
UDN: binding profit-take level: $16.98; stop-loss: none.
Additional profit-take level that you might find useful:
SLV: binding profit-take level: $29.27; stop-loss: none.
AGQ (2x leveraged): binding profit-take level: $41.97; stop-loss: none.
PSLV.TO: binding profit-take level: $14.97; stop-loss: none.
HZU.TO (2x leveraged): binding profit-take level: $29.87; stop-loss: none.
Long-term capital (core part of the portfolio; our opinion): If it was available for you (the offer already expired for new investors), half in the silver bond and half in cash / cash equivalents (T-bills). If it’s not available for you, cash / cash equivalents (T-bills).
Insurance capital (core part of the portfolio; our opinion): Full position. If you’d like to buy gold or silver (for example through your IRA – you get a guidebook on that over here), I suggest that you do so through one of the top gold dealers.
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).
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 linked essay.
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.
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.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief