We had a long and prosperous rally in gold stocks for the right fundamental reasons. When the Silver/Gold ratio bottomed and turned up it introduced inputs of massive speculation and momentum. No matter the excuses gold/silver bugs want to make, the correction was deserved and foreseeable (as we foresaw).
So our plan was and still is for an extended, multi-month correction. As noted previously, I’d be happy to revise that plan for something shorter-term, but as it stands now da plan be da plan.
An interim view within the longer correction is for the sector to make a bottom and a hard rally before the correction resumes. So let’s take a look at a couple downside targets for GDX.
The grey Fibonacci grid on the right is measured from the July, 2025 low of 51. I prefer it over the Fibs measured from the November low of 67.71, per the blue grid at left.
Either way, it is viable that GDX could halt its decline at 38% (grey) and 50% (blue) Fib areas, roughly around 90. But I think it is more likely that it will test support around 82 (50% Fib, grey), which is a little below the 62% Fib (blue). That is the first strong visual support area.
Why the deeper levels? Simply because of the momentum and hype that were in play for gold and especially silver. The upper pullback level includes the 50 day moving average, but this is the precious metals sector. When it gets a bit in the teeth of a correction, it rarely just ends calmly and logically.
Bottom Line
I am planning for a drop to 82 (+/-), which could be bought for a good trade. Until then, or until GDX proves it is holding its 50 day average support area, I’m hanging on to my hedges (JDST). As a side note, as previously noted, it appears that the precious metals are indeed leading a broader correction and I’m holding short hedges there too. I think there could be a solid buy up ahead on the whole shootin’ match with some patience. Aside from favored gold stocks, I am looking at items like MSFT and other usual suspects for a rebound rally. But that talk is not for now. Right now it’s ‘correction on’ as led by the precious metals.
Hey Gary,
Over in the physical silver Supply/Demand rabbit hole, everyone from the bullion banks, wholesalers, dealers, down to the stackers, just went through a looking glass of supply shock at the $100+/oz desert of supply.
So if there was no supply at these lofty, overbought prices for most anyone of the above mentioned, what do you think will change when fiz silver comes back to the prices you mention in this post? How does price have any say in supply in these ‘bottom of the rabbit hole’ times? Would you care to lay out your scenario?
btw, a market is of many minds, as you know. Just this morning, I watched youtube chartists providing a full unwind low in silver based on fib bring it potentially all the way down to between $54 – $41.50.
Not saying it would go all the way to that level, but if it were, what would you surmise would be the supply/demand situation if it did.
Thanks for the post this morning.
Hi RtC, unless I am losing my mind I did not mention silver prices in this post. But I think 50 is completely viable if we get the longer, multi-month PM correction that I think will unfold. But not on this leg. I think the vast majority of downside is already in for this initial decline. Looking at 68-72 for a final low prior to a rally.
Thanks. I wasn’t inferring that it was you projecting these lows. They just came out of other chartists’ fib work this morning I habitat on YT.
What my question really was referring to in my earlier note was what your insight was about what would be the situation of physical silver availability if/when these bottom prices came about. For example, it’s common knowledge that First Majestic produces its own bars from its own production.
How do you think their management (or any bullion producer) would feel about selling these bars at $68 -72 price you mentioned, if they weren’t keen to sell them at $110? They all had a supply dislocation, so they couldn’t even if they wanted to. But now, when price is say, half, how would this price swing affect their supply? In general, do you have any idea of how the producers will respond (via price) if they’re stuck in a futures market that ‘says’ $68 is THE price point (+overhead, commissions, of course) and they need to move product to maintain cash flow?
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Well RtC, I am not many things, and one of those things is a keen watcher of the mechanics of the bullion market. But I would guess they’d proceed business as usual, given the price is still double what it was a year ago. If anything, a pullback by sellers may unclog the pipes in the market. BTW, this morning silver hit the $68-$72 area. Amazing.