On Friday the precious metals sector plunged, which was something that we were expecting to see. However, it is surprising that gold, silver, and mining stocks, actually needed only a very small move higher in USD Index as a trigger to decline quite significantly. We emphasized sector's lack of reaction the whole past week and again in Friday's Update, but what actually happened on Friday was even more profound than what we had seen previously.

Gold:UDN ratio a.k.a. gold from the non-USD perspective moved below it's April low measured in weekly closing prices and the same goes for silver (from both USD and non-USD perspectives).

The volume seen in GLD, SLV, and GDX was higher during Friday's decline when compared to previous days' daily rallies - which is a bearish indication.

There was some underperformance seen in Silver:Gold ratio, but it was still not significant enough nor rapid in case of silver, to suggest that the bottom is in. Actually, taking into account today's pre-market action we already know that the bottom was not in, as gold and silver keep declining (along with only a slight move higher in the USD Index).

Meanwhile, the general stock market formed a significant weekly reversal and it seems that higher stock prices will be seen without further declines. This, along with the medium-term picture for the USD Index, provides us with bearish implications for the precious metals market.

In short, the situation is bearish because gold is already declining and USD didn't really move much higher so far. This means that a significant part of the decline is still ahead.

Summing up, we suggest keeping speculative short position in gold and silver and being out of the precious metals market with one's long-term capital.

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

• Gold: $1,428
• Silver: $23.55

We currently think that gold will temporarily move below $1,285, but pull back soon and close that week (the one in which it moves below $1,285) 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, 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 go long after gold has pulled 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 will probably not be reached, but if they do, they will present a great buying opportunity, 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