Gold moved higher yesterday, silver and miners didn't do anything and platinum declined. It's only one day of data and it's a small indication that it was the flight-to-safety factor linked to the Cyprus events that caused it. We were asked if this is a warning that gold could soon head lower. In our view, it's rather a warning that stocks could head lower. Gold is moving higher, even along with the USD Index (which is about to reach its turning point, by the way), but it is this part of the precious metals market that is most closely linked to the stock market that was underperforming.

The situation does look concerning for the platinum market as the platinum:gold ratio moves closely in tune with the general stock market - and the positive outlook on the stock market was one of the factors that made us suggest moving from gold to platinum in the previous months. However, Cyprus could be a game changer. It's too early to tell if this should impact your platinum-gold selection, because there's not enough data and because of the plain fact that platinum is one again priced lower than gold which is a 20+ year anomaly. We'll keep you informed.

There are two links that are worth following regarding the Cyprus events:

• Cyprus seeks Russian bailout aid, EU threatens cutoff
• National planning Cyprus-style solution for New Zealand

In short, Cypriot officials have turned down EU's offer. In our view, that's the only thing that they could do initially that would be appropriate from the political point of view. They will agree only after they have really hit the deadline. With each passing day when bank accounts are frozen, people might become more and more convinced that they prefer to get their 90%+ of cash than nothing. They will still be outraged, but they will see that it's the best option they've got. Quoting from the articles: "However, the EU has a tradition of pressing smaller countries to vote again until they achieve the desired outcome." While they are pressing and discussing how they can just force a country do what they want, people will continue to consider investing in gold that is well below its 2011 high. The rest of the precious metals sector should become more attractive as well.

Generally, even if the "tax" is not imposed on deposits on Cyprus, the way that EU is forcing this solution should make people consider gold ownership. If you were currently affected, but your money wasn't taxed in the end, wouldn't you want to take it out of the bank just in case they come up with that idea once again? Now it's not hard to imagine such seizures to be taking place also in other parts of the world. Take a look at the second link above if you haven't done so. Physical gold is getting an indirect public relations campaign.

On the technical side, yesterday we wrote the following:
The average of non-USD gold prices (gold:UDN ratio) didn't move above the analogous resistance line, so the situation improved, but not dramatically. It does seem that we might see such breakout after today's session as gold is rallying even though the USD Index is not declining.

We saw the breakout yesterday and now we're waiting for 2 more consecutive closes for the breakout to be confirmed. Perhaps we will see positive reaction in the whole precious metals sector, not only in case of gold and this, along with the above-mentioned breakout, would likely make us suggest adding to the speculative long positions in gold, silver and mining stocks. So far, we remain with our regular long positions.

Full speculative long positions are suggested for gold and silver and mining stocks.

Naturally, 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. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) at least until the end of March, 2013 and we will send additional Market Alerts whenever appropriate.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA