Gold, silver and - finally - mining stocks soared today.

Gold confirmed a breakout in terms of USD (moving above the upper border of the declining trend channel), yen (last week we mentioned that the situation was mixed from the yen perspective, but that is no longer the case; it's clearly bullish now) and many other currencies.

Silver moved sharply back above the rising support/resistance line (we marked it with a red line on the big silver chart in the latest update). The white metal is also above its 50-day moving average and the breakout has just been confirmed. Silver is still close to the cyclical turning point, but at this moment it appears likely that this turning point indicated a small pause within the rally that is already behind us (as explained in the latest Premium Update), so it does not need to have any additional bearish implications here.

Mining stocks rallied after another false "breakdown" below the 500 level. Quoting the latest Premium Update: "the HUI Index could correct or consolidate further especially if led by gold and silver. In this case, it still does not seem likely that such a decline would result in the HUI Index moving below the 500 level. In this week’s long-term HUI Index chart, we saw a decline this week. The index did not decline below the 500 level and its recent trading pattern is similar to what we saw last October. Back then, a period of rally followed a trading pattern similar to what we’ve seen since late December and there are bullish implications this time as well."

It clearly appears that the late-October rally pattern is repeating itself and we can expect a continuation of the rally in the following days.

The most encouraging part of the above-mentioned rallies is that they all materialized on huge volume. In simple terms, this move appears to be "true", not just an unconfirmed result of several random factors.

The main stock indices moved higher and the volume was significant as well. This is a bullish indication suggesting that higher prices may be ahead even without a pause that we were expecting before today's Fed announcement. At this point it seems that the S&P 500 will rally at least to the 2011 high or so.

What's behind all of this? The precious metals sector was ripe for a rally, as charts indicated. Investors were either bearish on gold or simply discouraged by lack of spectacular upswings in the previous weeks and many of them were NOT in the precious metals market, meaning that a lot of capital was on the sidelines, waiting for a decisive move in either direction. The spark that ignited the rally was Fed's statement about interest rates. Ben Bernanke said that the rates will likely remain at the near-zero levels at least until late 2014.

Let's take a closer look at Yahoo's report on the statement:

http://finance.yahoo.com/news/fed-set-push-back-timing-062228298.html

Here are some important quotes along with our comments:

"The late 2014 timeframe for the first rate hike was considerably later than investors had expected and some 18 months later than the Fed had suggested last year, and the announcement prompted a rally in U.S. government bonds."

Our comment: Since investors were surprised, then they view this comment as a positive change in the fundamental situation. It means that this factor is likely to help prices move up in the following days as well as weeks and possibly months.

"Bernanke was cautious about recent improvements in the U.S. economy, and he left the door open to further Fed bond purchases."

Our comment: So they can and will likely monetize debt in the future, which is another term for creating money out of thin air.

"If the situation continues with inflation below target and unemployment declining at a rate which is very, very slow, then ... the logic of our framework says we should be looking for ways to do more."

Our comment: Naturally Bernanke meant the "official inflation" that is calculated using several "adjustments". The framework that says they should be looking for ways to do more is the same framework that will likely push precious metals higher.

"The policy is credited with preventing an even more devastating downturn, but it has been insufficient to bring unemployment down to levels considered normal during good economic times."

Our translation: "Hey everyone, focus on the unemployment numbers! They are too high, so it's ok if we print much more money."

"They declined to announce a target for unemployment, saying the job market was often influenced by forces beyond their control."

Our comment: They could have simply said that they aim for the natural rate of unemployment (a.k.a. the structural unemployment rate), which is the long-run unemployment that - in a big short-cut - depends on the characteristics of the labor market. They could then provide results of research that indicates what that rate is. They didn't do it, because that would limit their options in the future. What if official unemployment moved below this rate? They wouldn't be able to get away with printing more money in this case. So, the Fed remains in the convenient position in which more money can always be created simply because the officials will not be satisfied with the current unemployment, regardless of its level.

Summing up, both: direct and indirect approach toward Fed's statement suggests that the fundamental situation for the precious metals sector is clearly bullish. Combined with positive technical situation, this provides us with a very bullish picture for the precious metals sector. If you were waiting on the sidelines with your capital, we suggest that you buy gold, silver and platinum without additional delay. Keeping long positions in the precious metals and mining stocks appears appropriate action. Traders that are not risk-averse may consider increasing the sizes of their long positions.

We will provide more detailed analysis on Friday - in this week's Premium Update. Naturally, should anything change before this day, you will be notified.

Thank you.

Sincerely,
Przemyslaw Radomski