As mentioned in the latest report, the next Premium Update is scheduled for Tuesday, June 8th 2010. Still, there are two things that I would like to comment on right away.

The first thing is that up to this point market's performance was in tune with both: early stage of the seasonal June decline, and a small correction within a big move such as the November 2009 one. That was the case until today, as we've just seen a visible decline in silver and precious metals mining stocks. Moreover, the signals from volume were very poor in the past several days - we've had higher daily upswings on low volume, and downswings on high volume. This suggests that the odds for a big rally in the whole precious metals sector are much lower than they were just a week ago.

Still, the gold market appears strong, based on the past several days, and also taking into account today's price action.

The particularly interesting fact here is that gold is now positively correlated with the U.S. Dollar, which suggests that the demand for gold is coming from outside of the U.S. Actually, performance of the latter is the second thing that we'd like to comment on in this message.

The USD Index was recently trading within a rising wedge pattern (trading sideways in a narrowing trading range, but moving up on average) and it took place on declining volume. In most cases these patterns are followed by a sharp downswing. However this was not the case today - it moved up. This breakout from the rising wedge pattern has not been confirmed yet, but it’s still bullish because it has already broken above the rising resistance line (marked on the USD charts in the latest Premium Update).

So, if USD is to rise, and gold has recently used to rise along with it, we might see gold higher in the next several days. During the previous part of the USD rally (beginning in mid-April) we've seen a sizable decline in the main stock indices. While the general stock market didn't break down today, there is a significant risk that this would take place again. It doesn't have to happen to the same extent, as we don't expect USD to rally by the same amount (in fact the next strong resistance is slightly below the 90 level), but it could negatively influence the prices of mining stocks and silver.

Additional factor worth considering here is that there is a seasonal tendency for the precious metals to move lower in the first half of June, BUT this effect is about two times stronger for silver than it is for gold.

Keeping in mind that the EUR/USD exchange rate accounts for more than a half of the USD Index, and that gold is to rise along with the USD Index, we might infer that the value of gold from the non-USD perspective (for instance gold in euro or gold in sterling) is going to increase.

Summing up, all of the above means the following:

- Silver and mining stocks are at risk at this point, and the risk/reward ratio doesn't look favorable,
- Gold may rally, but it doesn't seem that this rally would be as spectacular as what we've seen in November 2009,
- From the non-USD perspective gold (gold in euro, gold in sterling, etc.) may rally more significantly,
- The odds are that a rally in the USD Index would be accompanied by a decline on the general stock market.

Implications for Traders:

- Switching from mining stocks and silver to gold might be a good idea,
- Buy gold if you're trading gold for currency other than the U.S. Dollar.

There are no implications for Long-Term Investors at this point - we expect to see gold, silver, and mining stocks higher than they are today before the end of the year.

If the above points are no longer up-to-date and we will change our mind regarding the precious metals market, we will send out another Market Alert, even if it means sending it several minutes after sending this one.

Thank you.

Sincerely,
Przemyslaw Radomski