The headlines are screaming about the possible action against Syria today and gold moved higher once again (the RSI based on the daily gold prices moved above the 70 level). Silver moved a bit higher as well (touching the important 38.2% Fibonacci retracement level that we mentioned previously) and mining stocks moved up initially after which they declined below yesterday's closing price.

Silver reaching its resistance level (the one analogous to one that we saw in 2008) plus significant underperformance of mining stocks vs. gold is something that is a bearish indication and another situation in which betting on lower prices of metals and miners might be justified.

While there's no doubt that the situation in Syria is serious, it seems to us that the way it's being described today and the way markets reacted (consequently) might be exaggerated.

Quoting from finance.yahoo.com:

"U.S. stocks dropped on Tuesday on rising geopolitical tensions over the possibility of a military strike against Syrian President Bashar al-Assad's forces for a chemical weapons attack against civilians.

A number of nations and groups, including Britain, France, Canada and the Arab League, joined the United States in urging a firm response to Assad's government and said the world shouldn't stand by as chemical weapons are used.

Western sources who attended a meeting in Istanbul between envoys of an alliance opposed to Assad and the Syrian National Coalition said "action to deter further use of chemical weapons by the Assad regime could come as early as in the next few days."

Defense Secretary Chuck Hagel said U.S. military forces in the region are "ready to go" should President Barack Obama order action against Syria."

Starting from the last paragraph, there was no such order and we expect that the military forces were ready to go before today's announcement, so this information doesn't change anything, even though it seems like it does. The previous comments suggest that a military conflict might ensue in the next few days. Will it? Do you recall how long before the first more direct threat it took before the Iraq War started? It was much more than a few days. Why would the sources imply that a military conflict could follow shortly? Simply to put big pressure on the Assad regime. Will Barack Obama decide to start a war within a few days? Seems unlikely in our view.

Consequently, we suggest opening a speculative short position in gold, silver and mining stocks using half of the regular position and placing the stop-loss orders at the following levels (we will once again put them relatively close to get out should metals decide to rally even further):

• Gold: $1,439
• Silver: $24.85
• HUI: 289
• GDX ETF: $32.6

Why are we timing the short positions and not the long ones at the moment? Because the medium-term picture on the USD Index suggests that the next medium-term move in the USD will be to the upside which means that a medium-term move to the downside will likely be seen in case of the precious metals sector.

Long-term capital: Half position in gold, silver, platinum and mining stocks.

Trading capital: Short position (half): gold, silver and mining stocks.

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

As a reminder, Market Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent we will send you an additional small alert before posting the main one.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA