We believe that using one's speculative capital to bet on higher gold (!) prices is a good idea right now. It seems that the risk/reward ratio is much more favorable for gold than for silver and mining stocks at the moment.

Gold has just moved above the previous high and the move materialized on high volume, which serves as a bullish confirmation. At the same time silver did not move above previous high and mining stocks are not even really close to their previous highs.

Additionally, our indicator detecting short-term bottoms has just flashed a buy signal which - given its previous performance - is something that should not be ignored. You can check the chart (SP Short Term Gold Stocks Bottom Indicator) in the Premium Charts section on the website.

Please note that in the April 25th Market Alert we wrote the following:

"If this top is going to be similar to the previous major tops that we've seen so far - and we view that as likely, then we will see significant volatility in the following days/weeks and probably a double top of some kind; please take a look at 2006 and 2008 tops in silver for more details. This means that there will probably be another chance to exit the market that would be accompanied by additional confirmations. Consequently, the probability of a decline would be higher and selling (hedging) ones long-term holdings and opening speculative short positions may then be justified from the risk/reward perspective."

The volatility is clearly high and silver appears to be on its way to form above-mentioned "double top of some kind". Perhaps it would reach its record $50.35 intraday high. Yes, that is significantly higher from where silver is today, but please note that with this kind of volatility in the white metal, it will not be easy to exit one's position. Consequently, the reward may be high for short-term rally in silver, but the risk associated with betting on it is much higher than it is the case with gold. Therefore, betting on higher gold prices is preferred.

There are three main facts that we base this suggestion on:

1. Gold has little technical resistance above it, while silver has significant resistance (previous highs - up to $50.35) and the same can be said about mining stocks. 2. Before the past 2 major tops (2006 and 2008 ones) silver topped out earlier than gold and then moved only slightly above its high while gold truly rallied. Mining stocks have lagged below previous tops and their false breakout in both: 2006 and 2008 meant the end of the rally, 3. Gold has already begun to outperform yesterday by moving to new highs, while the rest of the precious metals sector did not.

Naturally, charts illustrating the above points will be presented in tomorrow's Premium Update.

Summing up, we think that it's a good idea to use one's speculative capital to bet on higher gold prices in the short term. We believe that this is the final part of this medium-term rally, so you will need to stay alert for new developments. Of course, we will keep you informed. No changes in the long-term investment capital are necessary at this point.

Thank you.

Sincerely,
Przemyslaw Radomski