Just a quick update as things are moving quite fast in the PMs.

The jobs report was exceptionally weak today, which made the markets think that the tapering isn’t coming or that it’s coming later than the market had previously believed. In other words, it was bullish for gold.

Consequently, gold rallied, silver rallied, and mining stocks rallied too.

Now, was this a one-time event, or does this indicate changes on the horizon and should one now really run for the hills dropping the short position in any part of the precious metals sector, including the junior mining stocks?

In my view, this does not change the medium-term downtrend at all.

Announcing tapering is a matter of time, and if it doesn’t happen in September, it’s likely to happen sooner rather than later anyway. And the markets – being forward looking – will discount that by declining even beforehand. Today’s rally is a counter-trend, event-driven upswing, not a game changer, in my view.

Remember when I wrote that the counter-trend corrective upswings that followed the completion of the broad head and shoulders pattern in the HUI Index were 4%-8%? Well, the current value of the HUI Index is about 8% above its lowest closing price of August, which means that the current upswing – as bullish as it might appear at the first sight – is well in tune with what happened during the biggest medium-term decline in the precious metals sector of the past decades. In other words, it’s not a game-changer even though today’s intraday volatility might make one think otherwise.

Also, please note that the GDX ETF just moved above its 50-day moving average in intraday terms and it then moved back down. The last time it did something like that, was on August 4, and it was the exact top, right before a big short-term decline.

And did you see how silver soared today? Especially compared to gold? Gold was up a bit more than 1%, while silver rallied over 4%. That’s the very definition of silver’s very short-term outperformance, something that often precedes sizable price declines in the precious metals sector.

All this, and the fact that we are right before the U.S. Labor Day (which is very often followed by huge price declines in gold) is more important, in my view, than today’s news-based intraday upswing.

The outlook for the precious metals remains bearish and so does the enormous potential for the short position in the junior mining stocks.

As always, we’ll keep you - our subscribers - informed.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief