In the final day of the year markets are not doing much so far. Gold moved about $10 higher earlier today, but moved back lower in the following hours. It's currently slowly moving higher once again.

Gold didn't decline significantly on Friday and the small move lower took place on relatively low volume. We were concerned that we could see a decline similar to what we had last year but at this time the probability of that taking place declined, but is still something to keep in mind. The question is how much would gold have to rally to invalidate this bearish analogy. In our view, a close back above the 300-day moving average or a significant rally on strong volume will make the picture bullish once again.

Silver didn't do much on Friday, however, since it's right at the cyclical turning point, we expect to see volatility in the coming days - and if the move is to the downside, the size of the move will likely not be huge as there is support at $29 level (spot silver).

The Euro Index closed the week above the 132 level and we view the breakout above the September high as verified. If the link between gold and the currencies wasn't upside down in the past several weeks, we would likely be looking at gold above its September high (approximately $1,800) as well. The situation looks favorable for gold but we would prefer to really see that the negative correlation has returned before suggesting going speculatively long gold based i.a. USD Index' decline.

The encouraging fact here is that the precious metals market didn't move lower on Friday even though stocks (S&P 500) did. 

The non-USD gold charts remains as discussed in the latest Premium Update and the gold:UDN ratio sums it up well - the breakdown was invalidated and the outlook is bullish for the medium term.

All in all, we are close to suggesting getting back on the long side of the precious metals market, but we don't suggest going speculatively long gold/silver/mining stocks just yet. The SP Indicators suggest being speculatively long mining stocks, so in connection with the above, we suggest limiting the size of the long position (half of the normal position).

We suggest remaining in the precious metals market with your long-term investments.

As always, we'll keep you updated should our views on the market change, however, since it's New Year's Eve today, we can't guarantee that we will be able to send another alert much later today.

Thank you and have a happy New Year!

Sincerely,
Przemyslaw Radomski, CFA