This is a buy alert for gold, silver and mining stocks.

The price-volume action in the GLD ETF was very significant yesterday. The 300-day moving average was broken on an intraday basis but gold (and GLD ETF) closed very close to it. Only a slight rally today or tomorrow would invalidate the breakdown. This is actually very similar to what happened in early November and back then after moving slightly below the 300-day moving average, gold rallied sharply to its 50-day moving average before taking a breather (currently such a move would result in gold going to $1,720).

The important thing about yesterday's decline and the reversal in the final part of the session was volume - it was huge. Declines that had been accompanied by volume of similar magnitude were usually followed by at least short-term rallies, especially if gold reversed on an intraday basis. Additionally, please note that while volume is significant on an absolute basis, when we take a look at it in relative terms and compare it to the previous weeks it becomes even more important.

The gold:XEU ratio (which is another name for gold priced in the euro) moved to the rising support line that we had mentioned yesterday. As a reminder:

"Gold formed a local bottom (also in terms of the euro) at the beginning of the month but in the past days it moved below that bottom so we might see a decline to the 12.6 level in the gold:XEU ratio (gold to Euro index ratio) before the final bottom is reached as this is where the long-term support line is located (the one that is based on the September 2011 low and the May 2012 low). When this support line is reached it will likely mark an important turning point for the precious metals market. We expect to see a confirmation from the SP Gold Bottom Indicator (its long-term version). When that happens, the odds that the bottom is really in will be further increased."

The ratio moved to 12.57 yesterday and closed at 12.64, so the above-mentioned target was reached. The RSI indicator based on this ratio moved below 30 level (to 25.70). The RSI based on gold priced in the euro was this low only several times in the past years and it always meant at least a local bottom from both: USD and euro perspectives. This is a major event.

The True Seasonal tendencies are very favorable for the precious metals sector at the moment.

On a bearish note, since the negative correlation between the USD Index and precious metals is probably (based on the above-mentioned bottom in the gold:XEU ratio) just around the corner and the USD Index is approaching a cyclical turning point after a visible decline, we might see a move higher in the USD Index and a move lower in gold. This, however, is a moderately weak indication at this point, because it's based on so many "ifs".

All in all, we believe the positive short-term factors significantly outweigh the only bearish factor and we think it’s a good idea to open speculative long positions in gold, silver and mining stocks. Our short-term price targets are $1,720, $33.5, and $49 for gold, silver and GDX ETF, respectively. We suggest putting stop-loss orders at the following price levels:

• Gold: $1,655
• Silver: $30.40
• GDX ETF: $44.4

Naturally, we suggest keeping your long-term precious metals investments intact.

We have additional good information for you: as the holiday season is closing in, we won't leave you, our subscribers, without a present. For Sunshine Profits holidays come early and we have already decided to continue sending you Market Alerts on a daily basis (on or after each trading day (with the exception of Fridays when Premium Updates are posted) at least until the end of JANUARY, 2013. In other words, after receiving very positive feedback from you (thank you) we extended the time for which we will continue to send you valuable information each day. As some of you suggested, we are also considering making this a part of our service.

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