Gold declined on Friday, as expected, but the same was neither the case for silver nor for mining stocks, which were basically flat on that day.

In fact, silver and miners held relatively well. The question is if that changes anything. In short, if this tendency holds for a few more days, then it will, but not yet.

Did miners and silver show very-short-term outperformance before the April plunge materialized? Yes, they did. The SLV:GLD ratio rallied on April 9 only to plunge in the following weeks. The GDX:GLD ratio moved higher on that day as well and it was also followed by a much bigger decline.

Mining stocks are currently a long-time underperformer relative to gold and silver has been underperforming the yellow metal for the past 2 years (and since December 2012 on a medium-term basis). It used to be the case that higher silver and miners heralded higher gold prices, but with both ratios in a major downtrend, it does no longer appear to be a sure bet. The flip side is that parts of the market that are weakest tend to act strongly right before a move lower, and it might be this type of reaction that we are currently seeing.

The latter type of reaction is usually short-lived, while the former (miners and silver leading gold) is something that is seen for days and weeks. Consequently, it seems that the best approach at this time is to stick with the bearish interpretation of silver's and miners' strength on Friday, but move to the bullish interpretation, if this strength continues.

Summing up, we continue to believe that betting on lower values of silver and mining stocks is justified from the risk/reward point of view. It's probably a good idea in case of gold as well, but we are not that convinced, so we're staying out. In other words, we continue to suggest having speculative short positions in silver and mining stocks.

The stop-loss levels are:

• Silver: $25.30
• GDX ETF: $32.2
• HUI Index: 305

Here's the up-to-date version of our trading/investment plan:

1. When gold moves to $1,305 open a long position in gold (with $1,268 as a stop-loss level).
2. When silver moves to $18.20 close the short position and open a long position in silver (with $17.65 as a stop-loss level).
3. When the XAU Index moves to 84, close the short position and open a long position in the mining stocks (with 80 in the XAU Index as a stop-loss level).

The above ($1,305, $18.20 and 84) are also the levels at which we suggest getting back on the long side of the precious metals market with half of your long-term investments. We will send a separate confirmation to get fully back in.

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 May, 2013 and we will send additional Market Alerts whenever appropriate. We have prolonged the time in which you - our subscribers - will receive Market Alerts daily for another full month.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA