Silver has moved below our stop-loss levels, so we no longer suggest keeping open a speculative long position in the silver market. We remain bullish for the medium term, but silver's cyclical turning point is about 2 weeks away and silver moved below its late-Feb low, so another decline could be seen shortly, before the white metal reverses and starts to rally. The final moves of either big declines or big rallies tend to be particularly volatile in silver, and since it just proved that we didn't see the final bottom in late February, we could see some volatility shortly.
The stop-loss levels for gold and the HUI Index were $1,534 and 328, respectively, so it's unlikely that they will be reached anytime soon (if at all). Today, we decided to move the stop-loss level for gold to $1,544 ($10 higher). The stop-loss level for mining stocks remains unchanged.
It seems that the buzz about the S&P Index moving to its 2007 high (1,576.09) is what makes investors so optimistic in general and at the same time unwilling to buy the anti-assets - precious metals and mining stocks. If stocks fail to move above their previous high - and we think that this will be the case - gold and the other metals/miners could very well attract more attention.
In other news, our self-similarity based tool we have previously mentioned currently suggests a move lower in gold to $1,510 in the following 2 weeks. This tool has actually two separate methods of generating signals and at this time both of them provide strongly bearish readings for the short term.
From the non-USD perspective gold did not manage to hold the breakout. The breakout seen in gold priced in euro is confirmed, but the "problem" here is that even a rather significant move from a short-term point of view will not invalidate the breakout. This sounds good, but it also means that there is no strong support close to where the gold price is.
The main reason for which we're staying long gold and mining stocks right now (with half of the regular positions) is that the coming rally could be very volatile and that it might be difficult to get back in the market. If it wasn't for this and the fact that the consolidation in the precious metals market is already exceptionally long and exhausting, we would follow the "when in doubt, stay out" principle. With this in mind, we think that being only partially long precious metals is a good idea and moving the stop-loss order for gold higher is also a step in a good direction. Gold's move below $1,544 would probably be triggered by the S&P 500 moving above its 2007 high, and if that breakout was confirmed gold would likely decline further - by keeping the stop-loss in place, we are being prepared for this scenario.
Summing up, half-size speculative long positions are suggested in gold and mining stocks, and no speculative position is suggested in case of silver.
However, at this time, we continue to suggest remaining in the precious metals market with your long-term investments.
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
