Trade talks between the US and China are back on for October and that means a lot of fast money hedge fund players that had been piling into gold/silver and Treasury bonds over the last few weeks hit the sell button in unison today.  The result was a drop in gold that reached ~$50 at session lows, and a 5.3% drop in gold miners (as represented by the GDX):

GDX (Daily)

This was hands down the worst day of 2019 for precious metals and the precious metals mining sector, and in many ways it was long overdue. Sentiment had become overheated and the technical condition of many precious metals mining charts had deteriorated in recent weeks with multiple bearish momentum divergences. In addition, the Commitments of Traders data for gold futures has shown large speculators flirting with +300,000 contracts in net length for the last few weeks – it is usually simple a matter of time before this overbullish condition results in a big shakeout:

Gold (CoT as of 9/2/2019)

So it begins…

Is it time to panic if you’re long precious metals and/or precious metals mining shares?

The short answer is NO. However, there is definitely ample potential for more downside over the near term. Early in the trading session I posted the following comment in the Trading Lab:

If you’re a long term bull you’re not going to be shaken out during the first day of a sell-off after a ~$400 rally in gold, however, it is also probably too early to be aggressive on the buy side. That is why “doing nothing” is oftentimes the best option. After a drop like today it’s usually prudent to wait until the afternoon of the 2nd day, or even the 3rd day of a decline before beginning to accumulate and/or add to long positions. 

In the short term the charts need some time to begin to bottom and form bases. However, in the bigger picture (weekly and monthly charts) today is little more than a blip within the context of a powerful paradigm shift that stands to favor gold and silver for years to come:

Gold (Monthly)

The monthly chart of gold exhibits a powerful volume profile since the current rally began in May, and today’s $40 dip comes after a $400 rally since the August 2018 low at $1167! Gold could realistically drop back as low as $1440 and still remain in a powerful uptrend on the weekly and monthly time frames. 

The best advice I can give an investor after a day like today is to stay focused on the big picture and use short term volatility to add to positions in gold/silver and your favorite mining stocks. 

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