In short, this is a buy alert.

We have seen a big move lower today, which made silver and mining stock hit the target areas that we described in the latest Premium Update. Gold was very close to doing so.

Quoting the last Premium Update:

"The precious metals are likely to once again move lower after this very short-term bounce, a pattern which is well in tune with the self-similar pattern seen between 2006 and 2012. Our downside target levels are: $1,650 for gold, $160 to $161 for the GLD ETF, $31 to $32 for the SLV ETF, $32 to $33 for spot silver, and 500 to 520 for the HUI Index (depending on the general stock market)."

GLD moved to $161.85 today (only $0.85 from our target area), SLV moved to $31.65, and HUI moved to 495. USD Index also moved very close to the 80 level (79.83), which was our target for this counter-trend bounce.

All of that happened right after our SP Gold Bottom Indicator flashed a long-term buy signal. In short, this signal is a big deal. We have previously featured this signal in our Dec 20, 2011 Mid-week Update, when we wrote the following:

"The four previous times when we've seen a buy signal (signal line crosses the horizontal dashed line at the bottom of the chart) from this indicator are: 9/27/2011 (the previous major bottom, followed by a $150 rally), 8/26/2011 (right after an important bottom, after which prices rallied over $200), 6/29/2011 (close to $1,500, a few days before a major bottom) and 1/24/2011 (below $1,350, a few days before a major bottom)."

It turned out that Dec 20, 2011 was just a few days ahead of the bottom; however buying on that day was certainly a good option (that is unless someone ignored our suggestions and sold right at the following bottom). All in all - 5 out of last 5 times this signal was seen a substantial rally followed - either immediately, or in a few days. However, please keep in mind that today's slide in the precious metals sector happened after the signal was generated, which means that we are very likely either at or very close to the bottom.

There is also a bearish case. The general stock market (S&P 500) didn't reach our target level yet - it moved to 1344 so far, while we are expecting to see a bottom close to 1320. So, we may see another downswing in stocks which may correspond to another move lower in the precious metals sector.

Also, we don't have signals from our "extreme" indicators so far, but we may very well see them based on today's session (based on their construction, they are more likely to be seen after volatile days).

Combining all of the above-mentioned factors makes us believe that we are very close to the next local bottom and that we already are at the favorable buying opportunity right now. We may or may not have seen a bottom in gold, but it seems that waiting for the final bottom to be reached is not worth the risk of missing the rally in case it takes off later today or tomorrow. If stocks declined, it seems that metals would move only a bit lower - perhaps to the lower part of the target areas that we mentioned previously. Consequently, we believe that it's a good idea to open speculative long positions (bet on higher prices) in gold, silver and mining stocks now. At the same time, traders should prepare themselves emotionally for the scenario in which metals move temporarily lower for a few days and then form a bottom. We realize that going long before seeing a confirmation that the bottom is in, is difficult, but this is the appropriate approach in our view - the risk of metals moving sharply higher soon is simply too big for one not to be in the market.

Please note that you are getting back in the market considerably lower than when we suggested exiting it (Feb 6, 2012).

There are no changes as far as long-term investments are concerned - we suggest remaining invested with this part of your capital. If you are not yet in, this is a major (!) signal for you to get back into the precious metals market.

Thank you.

Sincerely,
Przemyslaw Radomski