Yesterday mining stocks moved higher for the first time in days, but this move was very small and doesn't change much, if anything, at this point. Today miners are moving higher but they seem to have found resistance at Monday's low.

Gold seems to have found resistance close to the $1,425 level (practically at the 38.2% Fibonacci retracement level based on the Apr 9 - Apr 16 decline) and the analogous price level for silver is $24. Technically, the current trading sideways might be a flag formation, which would create a downside target below $1,200. However, we think that the Fibonacci retracement levels are much more important and consequently, our previous target levels remain in place.

You know that history rhymes and we can use these patterns to forecast future price movements. The patterns that we would like to emphasize today are previous huge declines - the shape and time they took before they were over. Please note that if you examine the big plunges that we saw in gold, silver and mining stocks in the previous years, they practically never ended right after the first extremely volatile decline. Examples: March 2008, August 2008, October 2008 (there was one small pause within the decline), Feb-March 2009, Dec 2011, and others. One could argue that the September 2011 decline was a one-slide even, but please note that the first volatile decline actually happened earlier, in August.

In other news, we have conducted a survey on Facebook to estimate investor's views on the gold market and to see if they are very bearish (which could signal that the bottom is in). The question is where would the gold price be in 2 weeks. Most people replied that it would be higher than today, so the bottom is likely not in as bottoms tend to form when the vast majority of people think that gold has further to fall. It's not the case right now.

Gold moved slightly above our stop-loss target level ($1,422) for the short position, but it happened before the markets opened - so, if you didn't close the position - please keep it and change the stop-loss order to $1,432 and if your position was closed we suggest re-opening it with $1,432 as the new stop-loss order.

The interesting fact that we were asked to comment on is that the prices for bullion coins on eBay didn't decline as significantly as the futures prices. Our take is that they didn't because people view this decline as very temporary and because there are quite significant transaction costs. The decline was very sharp, the fundamentals remain in place, and those who bought physical metals most likely did so based on the fundamental situation. If the price of gold stays low for longer, the physical market will likely slowly start to reflect that. If it doesn't change for months, then it will be a strong signal to get back on the physical side of the market as it will mean that prices simply won't go lower. At this time, however, this is a short-term phenomenon, something that could be explained with just the above.

Another thing that we would like to comment on today is the sharpness of the decline and whether or not it was artificially triggered. It could very well be the case that the decline was triggered by someone who simply wanted to see much lower gold prices (like the bullion banks). In our opinion, it was most likely the case. Thanks to technical analysis, we knew that the level that gold broke on Friday was the critical one and we knew the same about mining stocks days before that. Actually, technical analysis' principles that we follow take such events into account - please note the 3-day confirmation rule - the point is to make sure that the breakout or breakdown haven't been temporary. We would not apply this type of analysis to short-term interest rates which are set totally artificially, but in case of the precious metals market, this analysis can still provide useful information.

Our trading plan and stop-loss levels remain unchanged for silver and mining stocks and the stop-loss order for the short position in gold has been changed to $1,432.

In short:

Investment capital - no position.

Speculative capital - short position in gold, silver and mining stocks (half).

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