There is no Premium Update this week, but we will provide replies to your questions today, just as it usually is the case in the Letters from Subscribers section.

One of the questions that we have received is if gold and gold stocks would benefit from the Cyprus-led EU-turmoil or would we have a repeat of the 2008 action.

The question about the repeat of the 2008 action is one of the "boomerang" ones, and what we have written previously still represents our views on that issue. The 2008 plunge was an unprecedented event in many ways. Please recall why (in all likelihood) gold declined back then - because hedge funds were forced to liquidate their positions as they desperately needed cash. The major point is that no gold investor (including big hedge funds) knew what would happen to gold when stock markets around the world crashed, so they were not convinced that holding gold was really a good idea.

Now they know that it took stocks several years to move to their previous highs and gold managed to do the same in several months. Gold is now about 60% above its 2008 high. The mining stocks' performance was worse, however, the 2008 plunge was not one of several similar plunges, it was a one-of-a-kind plunge.

Consequently, if we see something similar soon, investors will recall what happened in 2008 - and that gold moved back up with vengeance and that maybe its not a good idea to sell. Investors will know that by waiting for the price to plunge, they may miss the coming rally because others can buy into the weakness before them.

If gold doesn't decline along with a stocks' move lower (and they have moved in the opposite directions lately, so maybe gold would actually rally strongly if stocks plunged), then gold stocks may not plunge as well.

Our point is not that there would surely be no move lower (even initially) if stocks plunged dramatically in light of any EU-problems. Our point is that it's not clear if that would be the case. There is a strong reason for which it should not be the case and that is because investors know how well gold performed in the months and years following the big 2008 plunge.

If the eurozone breaks up, will hedge funds have to dump their gold holdings for liquidity? Not likely. And thus, gold certainly doesn't have to decline in that case.

In other news, there has been a poll on finance.yahoo.com recently and the question was "As Cyprus secures a last-minute bailout, how are you positioning your international holdings in your portfolio?"

The winning option (57%) was "I'm keeping things as is", then "I'm going into cash" (23%), "Decreasing global stock exposure" (13%), and "Increasing global stock exposure" (7%).

In other words, just like we wrote earlier, most investors don't think that the Cyprus crisis has had any impact on their investments. However, some do. These investors who moved to cash, might move to the ultimate form of cash - gold and silver, and it seems that they are already doing just that - on a small scale. We expect people to join at higher prices - and contribute to even higher prices.

Technically, gold moved higher yesterday, also from the non-USD perspective. We're still waiting for the confirmation of the breakout from the latter perspective.

Overall, the precious metals sector has been moving back and forth this week, without any significant changes. Silver moved temporary lower yesterday, but bounced back shortly. The move was probably caused by silver's overreaction to the weakness in the European stock markets.

USD Index - earlier this week we saw a temporary move lower below the 82 level after which the Dollar Index rallied back up. This volatile action happened right at the cyclical turning point. At this time, it could be the case that what was supposed to happen based on it has already happened. Consequently, USD could rally further. However, it will not move much above the 84 level, as there is an important resistance level created by the July 2012 high. What does it mean for gold? Not much. It's not reacting to dollar's strength, so we don't think one needs to worry about it. The USD Index will decline sooner or later (likely sooner) and we expect gold's rally to accelerate when that happens.

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

Thank you.

Sincerely,
Przemyslaw Radomski, CFA