How To Join The Mining Party… Before It Ends

In conclusion, the gold miners should continue to glisten as oversold conditions buoy them back to the $33-$35 range. Due to the GDX ETF’s recent strength, combined with gold rallying off of the lows on Mar. 5, the PMs could enjoy a profitable one-week (or so) party. However, with the celebration likely to be short-lived, it’s important to keep things in perspective. While this week’s performance may elicit superficial confidence, medium-term clouds have already formed. As a result, positioning for an extended rally offers more risk than reward.

(We normally include the "Letters to the Editor" section in the full version of Gold & Silver Trading Alerts only, but today I decided to include it also in this free version of the full (about 10x bigger than what you just read) analysis so that you get the idea of how this part of the analysis looks like. It might be quite informative too. Enjoy:)

Letters to the Editor

Q: Could you update your thoughts regarding physical [gold and silver] for those looking to acquire additional positions - specifically, what do you think premiums and availability are going to look like when/if spot goes a $100 or $200 down from here? By way of example, I bought some U.S. gold buffaloes at $1854 spot at $1954. Those same coins at $1710 spot are still around $1930 if there are any to be found.

A: It’s a tough call because the premium values don’t follow the technical patterns. Still, based on the analogy to situations that seem similar to what we saw recently, it seems that we can indeed say something about the likely physical values close to the likely $1,450 bottom.

Figure 43 - Source:

The above chart shows the eBay premium for 1 oz Gold American Eagle coins over the spot gold price.

In April 2020, the premium spiked at about 14%. It was likely even higher in March (we don’t have the direct data), but the volatility back then was bigger than it is right now, so it seems that the current premium and the April 2020 premium values are a better proxy for the future bottoming premiums than the March 2020 bottom premium would be. If the volatility increases, one could see the premium at about 15% or so.

With gold at about $1,450, the above-mentioned information means Gold American Eagle coins can cost about $1,670.

Still, since gold futures prices seem more predictable than the prices of bullion coins, I’d focus on the former even while timing the purchase of the latter.

Moreover, please note that I’m planning to focus on buying mining stocks close to the bottom and move to metals only later. The reason is that miners tend to outperform in the early days of a major rally (just like they did in the first quarter of 2016). The fact that the premium is likely to be high when gold bottoms in a volatile manner is yet another reason for the above. When switching from mining stocks to physical holdings several weeks or months later, one might be buying at a smaller premium over the spot, and also after having gained more on miners than on the metals. Of course, the above is just my opinion, and you can purchase whatever you want – after all, it’s your capital and your investment decisions.

Q: Please note that I am glad to see gold moving downwards but I am a little confused – the trading report I just received recommends selling at 1690ish but the mailing previously said 1450ish - please see attached.

Could you please investigate and advise.

A: If anything in the Gold & Silver Trading Alerts seems confusing, please refer to the “Summary”, the trading/investment positions, and the “Overview of the Upcoming Part of the Decline” sections for clarification. In this case, we exited the remaining short positions when gold hit $1,693 and almost immediately entered long ones (when gold hit $1,692). We now have long positions in the mining stocks with the plan to exit them in a week or so, and re-enter short positions then, because the next big move is likely to be to the downside (perhaps as low as $1,450 or so). Also, the above is just my opinion, not a recommendation or investment advice.

Q: Hi P.R., thanks for the advice on this trend, it’s been an amazing trade.

As I’m trading on XAUUSD, are you also able to advise the targets for a gold long entry,

or should I wait for the final bottom before opening any longs?

A: I’m very happy that you’re making profits thanks to my analyses. While I think that the very short-term (for the next 5 trading days or so) outlook for gold, silver and mining stocks is bullish, I think the targets are more predictable for mining stocks than they are for gold and – especially – silver. Still, this time, the short-term upside target for gold is also relatively clear – at about $1,770. That’s why I put the $1,758 in the “For-your-information target” for gold in the “Summary” section below.

View single page >> |

Disclaimer: All essays, research, and information found on the Website represent the analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.