Yesterday we wrote that precious metals hadn't done much previously and we can say the similar today.

The correlation between precious metals and the USD Index is becoming significant once again. No wonder - the USD Index started to rally in the first half of May which was when gold, silver and mining stocks started to decline once again. Gold has been consolidating for 2 weeks now and we can say the same about the USD Index.

The key point here is that the USD Index is after a major breakout and now it's also likely close to ending its short-term consolidation (which could be easily called the continuation flag pattern) - the outlook is bullish which has bearish implications for the precious metals market.

We - subjectively - think that the precious metals market and mining stocks will move lower in the coming weeks. On top of that, we have the seasonal tendency that suggests that it's time for the miners and metals to decline. Generally, the end of May / beginning of June used to be a good time of the year to either exit long positions or enter short ones. This might be a reason to increase the size of the short positions in the precious metals market. However, we are not suggesting that. Why not? Because the SP Indicators have been flashing buy signals lately and our soon-to-be-released self-similarity-based tool moved from a bearish to bullish outlook (suggesting a move back to the early May high). Overall, we suggest keeping small short position (half of the regular position), so no changes here since our previous commentary.

Summing up, we believe that betting on lower values of gold, silver and mining stocks is justified from the risk/reward point of view. In other words, we suggest having speculative short positions in gold, silver and mining stocks (half of the regular position).

The stop-loss levels for the current short positions are:

• Gold: $1,505
• Silver: $25.30
• GDX ETF: $32.2
• HUI Index: 305

We currently think that gold will temporarily move below $1,285, but pull back soon and close the week around this level. How low gold will temporarily go is unclear - perhaps it will form an intra-day bottom close to $1,200 or even $1,100.

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

1. When gold moves to $1,305 close the speculative short position in gold and get back in the market with half of your long-term gold and platinum investments.
2. When silver moves to $18.20 close the speculative short position and in silver get back in the market with half of your long-term silver investments.
3. When the XAU Index moves to 84, close the speculative short position in mining stocks and get back in the market with half of your long-term mining stock investments.

We will send a separate confirmation to get fully back in.

As far as trading capital is concerned we currently think that placing distant bids is appropriate. They may not get filled, but if we place them too high, we risk being thrown out of the market via stop-loss orders or margin calls if the volatility gets too high (and it's unpredictable how volatile the markets will get as gold is in a reverse parabola right now). If they don't get filled, we plan to get long after gold pulls back significantly on an intra-day basis on huge volume (thus creating a bullish candlestick - probably a "hammer candlestick").

The distant buy price levels are:

• Gold: $1,120 (stop-loss: $970)
• Silver: $16.20 (stop-loss: $14.4)
• $HUI: 155 (stop-loss: 137)

As we wrote, these levels are distant and probably will not be reached, but if they are, they will present a great buying opportunity and also a one that will likely disappear almost immediately - that's why we we think that placing orders in advance is appropriate.

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 June, 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