Last week we wrote the following about the possible solution to the Cyprus crisis:

Our 'bet' goes to the solution in which they talk more, set deadlines and move them a few times, and then Cyprus accepts EU's help and EU will agree to lower the 'tax', perhaps by taking only a half or third of what is currently demanded.

The agreement was just reached and Cyprus will indeed accept EU's help.

Cyprus will accept the $13 billion bailout, but at the same time it will shut down its second-largest bank (Popular Bank of Cyprus) and agree to heavy losses on uninsured bank deposits. Deposits under 100,000 euros will be moved to the Bank of Cyprus and deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Popular Bank's of Cyprus debts and recapitalize the Bank of Cyprus. This "seizure" is expected to raise 4.2 billion euros.

So, instead of seizing a 6.75%-9.9% of all deposits, we will see a much greater seizure but for a much smaller group. Politically, it's easier, because there will only be a relatively small group of voters who will be affected.

Last week we also wrote the following:

Whatever the solution is, the situation is likely to remain positive for the precious metals market because all the buzz around it just make it obvious to everyone that they should have wealth stored at least partially in an asset that is much safer than bank deposits. Gold and silver (especially physical, and especially geographically diversified), should come to many investors' minds.

We stick with the above. Taking 4.2 billion euros from deposits is not helping to trust the banking system nor is that a solution that makes gold seem any less appealing. This might have been the trigger for the next rally in gold.

Technically, gold seems to be forming a bullish short-term cup-and-handle pattern (with the beginning of the pattern at the late-Feb high). We will know that after gold has visibly moved above that high - $1,620. Speaking of breakouts, gold didn't move above the declining resistance line in case of the non-USD perspective last week, so we are not suggesting doubling the long position in the precious metals market.

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. In particular, don't let the bearish analyses, declining prices or sideway moves make you sell your long-term precious metals investments. It's a good time to be adding to the long-term gold & silver investments, not a bad one.

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