Today is the perfect example of how much a few hours can change in a volatile market. It was only several hours ago when gold was above $1,400 (which was already low) when we sent out the previous Market Alert.

We wrote that "the closest significant support level is currently close to $1,350." At the moment of writing these words gold is already at $1,360 and by the time you read them it might have already reached $1,350 or moved below it.

We didn't think that it would move this low so soon, and we based the $1,350 target on an increase in gold's rising support line. To be precise - at this moment, the key support is slightly lower - at $1,335. There is another strong support at $1,286 - that's the support level that is created by the 38.2% Fibonacci retracement level based on the entire 2001 - 2011 rally in gold.

Based on our experience, Fibonacci retracement levels tend to work better on intra-day price moves and support lines (be that rising, declining or horizontal) tend to work better for daily closing prices. Our best guess at this time is that gold will move slightly below $1,300 and then it will move sharply up. Whether or not this will be the final bottom of this decline, is not clear.

Either way, we expect to see gold's bottom when other markets (silver, mining stocks) reach their own support levels. In case of silver, the situation is clearer at this time: the $21.4 - $21.7 area is a major and very strong support level. If broken (unlikely, at least without a bounce), the next is located at the $18 level (declining support line - marked with green in Friday's Premium Update + that's the level at which the huge 2010-2011 rally started).

The target for the HUI Index remains in place - 266. It's quite close to where the index is trading right now (274), so we could see a small bounce and then another decline - along with gold and silver - to this level before the bottom is reached. If we see this level broken when gold and silver move below their recent highs, things will become even worse, technically, because then the next major support for the mining stocks would be at their 2008 lows - at 150 in case of the HUI Index. Yes, it could happen. It's not likely to happen, but we should take this scenario into account. Actually, we should hope that this happens, because it would provides us with incredibly cheap - yet valuable - equities.

Here are our suggestions for the current environment.

A) Trading positions. We plan to trade either the comeback or a volatile pullback.

1. When gold moves to $1,305 close the short speculative position in gold and open a long one.
2. When silver moves to $22.1 close the short speculative position in silver and open a long one.
3. When mining stocks (HUI Index) are between 260 and 270 and if either of the above conditions (gold at or below $1,305 and/or silver at or below $22.1) are met, close the short position in mining stocks and open a long one.

If possible, please place orders now (this might not be doable for point number 3, but it should be possible for points number 1 and 2. This is important as we might not be able to send you another alert before the opportunity disappears.

B) Long-term investments. If HUI is above 260 AND gold gets below $1,300, but doesn't decline below $1,280 AND silver moves below $22, but not below $21 - get back into the precious metals market with your long-term capital. In other words, go back long gold, platinum, silver and mining stocks if all the above-mentioned conditions are met. The above should allow you to get back in a bit sooner (before we write and send out another alert) and at lower prices. If these conditions are not met, we will still let you know when we think it's a good idea to get back.

For now, the suggestions remain as described in our earlier Market Alert:

1. Investment capital - no position.
2. Speculative capital - short position in gold, silver and mining stocks (half).
3. Do not sell gold/silver that you view as your insurance capital. You will find details in our Gold Portfolio report, but in short it means that you should leave some of the physical precious metals holdings intact "just in case".

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 April, 2013 and we will send additional Market Alerts whenever appropriate.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA