Gold move sharply lower today and yesterday, so the question is if the big move lower is upon us or was that just another mid-rally correction. We believe the former is more likely, so traders may want to short gold, silver and mining stocks at the moment.

The very short-term support line has been broken in case of the GLD ETF, which ends gold parabolic upswing. Moreover, from the non-USD perspective, gold is once again below the important support/resistance based on early-2009 and mid-2010 tops (as seen in the latest Premium Update on the gold:UDN ratio chart). This is a fake breakout (a.k.a. "fakeout"), which is a bearish signal.

Moreover, action in silver and mining stocks suggests that we're going to move lower: silver moves in perfect tune with the analogy described in the "silver update" posted on Monday, and mining stocks appear to follow the "symmetrical pattern analogy" as described on the HUI Index chart in the latest Premium Update. Additionally, we've seen a spike high volume in the GDX:SPY ratio, right after it moved sharply higher and RSI based on it was well over 70. This is also a sell signal.

This week we've received the following question (thank you):

"I've just been looking at the 2 year charts for gold and silver. Both charts show a very similar pattern up until Feb of this year. At that time silver commences its parabolic rise while gold follows on its established path. Then in May silver suffers its steep correction while gold continues to plod along. Then in July gold seems to take its turn at a parabolic rise.

Would it be irrational or an oversimplification to assume that gold's current steep rise should correct in a similar manner to which silver did in May, and if so, would such a correction in gold trigger another down turn for silver??"

Yes, and in fact, we quoted the entire question, because it summarizes the probable scenario very well - at least in our view. We believe that there's about 65%-70% probability that gold will move lower in the following weeks and we believe opening a short position in gold/silver/mining stocks is a good idea. Naturally, the 65%-70% probability is not a sure bet, so please be sure to use limited amount of capital for this bet.

How low could gold go? If gold does indeed move lower our targets for gold are $1,700 and then possibly $1,600. In case of silver, the target is around $33. The target for mining stocks (here: HUI Index) is the least clear one at this point - likely between 480 and 520.

As always, we will keep you informed notify you immediately if the above-mentioned targets are reached or if we change our views on the market.

Thank you.

Sincerely,

Przemyslaw Radomski