This essay is based on the Premium Update posted on March 5th, 2010. Visit our archives for more gold articles.

In our previous essays we have covered the situation on the USD, gold and silver markets, but since there's more to the precious metals sector than just these two metals, we have decided to supplement the previous analysis by covering the precious metals stocks. If you are interested in trading gold and silver only, you might want to reconsider before clicking that X in your web browser's window - after all, precious metals stocks are highly correlated with the metals, and they even used to lead the metals in the past. Consequently, even if you are not interested in trading or investing in the PM stocks, you might still benefit by analyzing this part of the sector.

Let's begin commenting on the precious metals stocks, by analyzing the long-term chart of the HUI Index (charts courtesy of http://stockcharts.com.)

Two weeks ago we wrote the following:

The analysis of the long-term HUI chart suggests that gold stocks may need to move a little higher before forming a temporary top. In the past, local tops have been formed after HUI Index moved above the 50-day moving average, which hasn't been the case yet.

During the past several days, HUI Index has in fact moved above the 50-day moving average, which meant that one might expect a local top to be reached rather sooner than later. This was also one of the factors that we took into account before we decided to send out the Market Alert on Wednesday.

Moreover, the situation on the short-term chart suggests that a short-term resistance level has been reached.

Not only did the value of the GDX ETF move to the declining resistance level (blue line), but it also failed to confirm the breakout above the 38.2% Fibonacci retracement level (black horizontal line near 45.5.)

One of the ways in which a breakout can be confirmed is that the price breaks above a given level and then manages to stay there for at least three consecutive days. This has not been the case here so far. Additionally, the RSI indicator is near the 60 level and the last time that this was the case, we have seen a temporary top - in early January.

One of our unique indicators from the Premium Charts section is also suggesting that we are near a turning point, and so does the GDX:SPY ratio.

The GDX:SPY ratio measures the outperformance of PM stocks relative to other stocks. We have also featured the above chart in the December 4th 2009 Premium Update. Back then we wrote the following:

In the past the GDX:SPY ratio topped on a relatively high volume, and this is also what we have just seen. (...) The top in the above ratio is very likely to correspond to top in the PM stocks, and also to the top in the metals.

In the following days/weeks the value of the GDX:SPY ratio declined significantly along with prices of gold, silver and precious metals stocks. The high volume in this ratio has also accompanied the local top in the early January, and this is also what we have seen right now. Therefore, keeping a speculative (!) long position in the PM sector at this point does not seem to be a profitable decision.

Another part of the PM stock sector is created by the junior mining companies.As far as juniors are concerned - and as we explained in the January 15th Premium Update - we currently don't recommend owning juniors with a large part of your capital because of their very high correlation with the general stock market and the bearish situation on the latter.

Back then we wrote that if you are risk averse, switching from juniors into physical gold/silver, seems to be a good idea, which turned out to be a good call.

The value of the GDNX:GLD ratio has moved lower since the mid-January. CDNX (the Toronto Stock Exchange Venture index) is commonly used as a proxy for juniors. It consists of about 500 largest stocks listed on that particular exchange, most of which are junior mining companies.

The situation has somewhat calmed down meaning that the ratio has been trading sideways in February, but we have not seen any sings that would suggest that it is safe to move into juniors with a large part of one's capital.

Summing up, signals coming from the analysis of the PM stocks' charts currently don't give us very precise signals, which may mean that they are to trade sideways for some time instead of making a sharp move in any direction, but there are other signals, such as the one included in this week's free commentary that suggest that we may be near a local top.

As far as the target for the decline (if one does materialize) is concerned - it is too early to say. We will keep our Subscribers updated and get back to this topic once we have more information.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski

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The situation in the Eurozone remains tense, which is a positive fundamental information for the USD Index. The general stock market is approaching a very strong resistance level, but still managed to rise today. What does it mean for the Precious Metals Investors? You will find answers to this, and many other questions in this week's Premium Update.

This week's Premium Update contains 17 detailed charts/tables and over 4000 words of thorough analysis dedicated to explaining the logic behind the points made in the latest Market Alert. Not only have we covered the long- and short-term situation in the USD Index, the general stock market, gold, silver, ad precious metals stocks, but we also commented on connections between these markets.

For instance, different techniques applied to silver and gold link today's situation on these markets to one of the previous ones, which greatly improves the overall accuracy of the analysis.

We have also commented on the recent signal from one of our unique indicators, and the ones coming from the GDX:SPY ratio chart and the Gold Miners Bullish Percent Index - possibly a powerful combination.

Moreover, this issue includes rankings of top gold and silver juniors. Additionally, we provide you with a chart featuring prices of juniors relative to gold itself, and comment on the outlook for this particular sector given the bearish situation in the main stock indices. We encourage you to Subscribe to the Premium Service today and read the full version of this week's analysis right away.