In the summary of the latest Premium Update I emphasized that the two key drivers of PM prices have become vulnerable to a strong move in either direction.

Yesterday, the situation on the abovementioned markets (USD and the general stock market) developed in the unfavorable direction, as far as precious metals are concerned. The USD moved higher, thus making it more likely that the breakout from the declining trend line (please see the second USD chart in the latest Premium Update for details). On the other hand, the USD Index is still below the multi-month trend line, which is visible on the first USD chart from the Premium Update. This long-term trend line is much more important, so the main trend still remains down. However, if the USD Index breaks above 79.9 level and stays there for three consecutive days, it will become probable that it will more higher in the medium term (for several weeks or so). This, would naturally have the important (negative) implications for the precious metals market, especially gold and the corresponding stocks.

Silver has been recently rather uncorrelated with the USD Index, and has moved more or less in tune with the main stock indices. Since the latter have just broken below their recent support level (99.34 on the SPY ETF), the technical situation for silver is rather unfavorable in the short term. Naturally, we need to wait for the confirmation of the breakdown (three closes below the support level).

As far as the metals are concerned, both gold and silver (and corresponding stocks) moved substantially lower, but after putting this move into proper perspective, it becomes clear that they are still within their trading ranges, so the situation is not definitely bearish - at least not yet. Please take a look at the following charts for details:

http://www.sunshineprofits.com/files/images/market_alert_2009aug18.png

http://www.sunshineprofits.com/files/images/market_alert_2009aug18_2.png

I would certainly wish to see gold and silver show strength regardless of other markets, but I am responsible for reporting to you the situation as it is at the current moment, not as I would like it to be. For now, there are no decisive signs of a breakdown, but if USD confirms its breakout and general stock market confirms its breakdown, it will be lower prices of PMs (and PM stocks), not higher, that are most probable in the short term (I am not selling my long-term holdings here).

Sincerely,
Przemyslaw Radomski