GDXJ declined once again yesterday, but the situation in silver juniors is even worse!
Silver Juniors in Trouble
Yes, it is possible for a market to be in an even worse position than gold junior mining stocks – that’s the case with silver juniors.
To be precise, the GDXJ aims to be exposed to about 80% gold juniors and 20% of silver juniors, but the SILJ ETF aims to be exposed to just silver miners, with the focus on junior miners.
The ETF just broke below its 2022 and 2023 lows!
The 2022 level held up well not once but twice in 2023. This time, junior miners moved below it, which is a very important sign for the entire sector.
Why? Because this tells us that this time IS different. It’s not an expectation or assumption – it’s a fact.
The next strong support in SILJ’s case is all the way down at its 2020 lows. Will it move there? That’s likely. Will it move there right away without periodic corrections? That’s unlikely.
One caveat here – if the stock market plunges, silver juniors could plunge too, and reach their 2020 lows without bigger pullbacks.
The silver juniors and their breakdown serve as a canary in the gold and silver mine. Breakdowns are about to happen, even if they don’t happen immediately.
The GDXJ ETF didn’t move to their 2023, let alone 2022 lows, but it just moved very close to its 2024 lows. In fact, yesterday’s close was the second-lowest close of this year.
Given the recent weakness in junior miners, the fact that the RSI is not at 30 just yet, and given that stronger support levels (like the 2023 low) are below the current prices, it seems that miners’ decline is going to continue. We’ve been shorting this sector for a while now, and the profits on this trade are quite nice, to say the least.
Now, as I mentioned before what happens on the stock market might impact mining stocks, but the dynamic of this link is very specific – and one that contributes to the current awesome opportunity in this sector.
The thing is that if stocks move higher, juniors pretty much ignore this move. But if stocks decline, juniors decline even more.
Combining this with stock market’s very vulnerable position creates a tremendous risk (for those thinking that precious metals and mining stocks can only go up) and a tremendous opportunity (for those knowing that slides like the one in 2020 and 2008 can repeat).
Why would the stock market be in a vulnerable position? I don’t think anyone needs to see stocks’ long-term chart – everyone knows that stocks are after a big, medium-term upswing that took them above 5,000. There are analogies to 1929 and there is a very short-term indication that perhaps the final top just formed.
The S&P 500 Index futures moved below their initial lows, which could have been the first of many breakdowns. Right now, stocks are testing their breakout above the mid-Feb. highs. If they invalidate this breakout, the follow-up could be bearish, then very bearish, and then extremely bearish (I mean the subsequent waves down that could get bigger in each case).
Gold's Response
How would gold deal with this kind of moves in stocks? It would be likely to decline, and it’s already doing so based on its own technical reasons.
Gold price recently verified its short-term breakdown and now is breaking below another – lower – support line.
The 61.8% Fibonacci retracement level surely did its job well by stopping and ending gold’s short-term correction.
No wonder that gold is moving lower today – the USD Index – one of its key fundamental drivers – just broke higher.
After the initial move above the declining red line, the USD Index moved down once again, but not below it. It seems that the USDX can move up quite substantially from here, at least in the short term.
All in all, it looks like mining stocks are in the perfect hell right now – rallies are brief, and declines last. But so do profits if one is positioned to take advantage of this trend. We might see a short-term turnaround soon – even today – but we’re not there yet.