We summarized the last Premium Update (and most other Updates/Alerts) with a promise that we'll keep you updated if anything changes. We believe something has indeed changed.

The volume that accompanied Friday's decline in gold was huge, especially when compared to the volume that we've seen during previous days when the yellow metal moved higher. This is important bearish signal and should not be ignored. For instance, we had the same signal in mid-November 2011 at the beginning of the decline. As you are aware based on this Friday's update, we were expecting to see a local top (we use the word "local" to emphasize the fact that this is not the final top for this bull market) soon, so the question is if this top is already in or should one expect to see higher prices before the correction materializes.

The price of gold did not reach the target of $1,780 yet, but it was very close to this price - less than $20 below it and $20 is not much compared to the size of the recent $200+ rally. Consequently, the local top that we were expecting to see this week, may already be in. At this point we see the probability of gold moving above $1,800 without additional - at least weekly - correction at 55%. So, in a way, we're bullish for the short term, but not bullish enough to think that opening a speculative long position in gold is a good idea. In other words, the risk of price not moving higher soon is too big.

If one wouldn't open a speculative position now, then it means that the speculative long positions that are currently opened in gold, should be closed. The same goes for silver and mining stocks, because the odds are that the whole precious metals market will move in the same direction in the short term. In other words, we believe that traders should close their long positions in the precious metals sector, realize profits and wait for another favorable buying opportunity.

The size of the volume made us reconsider our downside targets. Based on the most recent information, we believe that gold will bottom in the $1,650-$1,680 range, silver's downside target range is $30-$31 and GDX is at $52-$53.

If you are willing to wait for gold to move higher before exiting your long position (which we don't recommend, but realize that more risk-seeking traders will prefer to do so), it seems that the final sell signal will be seen when S&P 500 reaches its 2011 high (1370). Please note that only the risk-seeking traders should consider waiting for higher prices before exiting their current long position in the metals. We believe that most traders should exit their long positions in the sector now.

There are no changes as far as long-term investments are concerned - we suggest remaining invested with this part of your capital.

Thank you.

Sincerely,
Przemyslaw Radomski