Gold and silver moved lower on Friday and didn't do much in early trading today. In short, what we wrote in last week's Market Alerts and the Premium Update took Friday's price action into account. The situation is similar to what we saw on November 28 as gold, silver and mining stocks are almost at the same price levels.

Gold moved close to the 61.8% Fibonacci retracement but pulled back and closed the day very close to the 50% retracement. This is technically still a retracement, not a new downtrend. One concerning factor here is that it's the third consecutive close below the rising support line (created by connecting early- and mid-November bottoms), however in light of all the other bullish factors, we don't view it as overly significant.

Silver once again moved to its 50-day moving average and pulled back. There was no breakdown, the uptrend remains in place.

Mining stocks didn't do much on Friday - they moved lower on average volume, which doesn't have technical implications in our view.

The interesting event is the buy signal from the SP Gold Stock Extreme #2 indicator. It moved above its signal line and the last time we saw it based on Nov 16, 2012 closing prices - precisely at the bottom in gold, silver and mining stocks.

The interpretation of the signal is: go long gold, silver and mining stocks with a 2-week trade in mind.

At this point it seems to us that the situation is similar to what we saw in late August 2012 when the precious metals sector paused before moving higher.

We sent out the following information on November 28, 2012, but it is worth repeating (and up-to-date) again:

"The True Seasonal patterns are favorable for precious metals, the major bottom seems to have been reached when gold moved to its 300-day moving average and the fundamental situation favors higher precious metals prices. The short-term breakdown in case of gold and weak performance of miners in the last several days is not enough to invalidate the above.

Consequently, we believe that keeping long positions in gold, silver and mining stocks is a good idea.

However, we do realize that this might (it's not likely in our view, though) be a beginning of another move lower that could take gold to $1,620, where it's declining resistance line is located (the one based on 2011 high and the late-February 2012 high), and we believe you should be prepared for that as well.

Consequently, please add stop-loss orders to your long positions - $1,695 for gold, $32.7 for silver and 430 for the HUI Index. 

We suggest keeping your long-term precious metals investments intact.

As always, we'll keep you updated should our views on the market change - even if it means sending another message in several minutes."

Thank you.

Sincerely,
Przemyslaw Radomski, CFA