In Friday's Update we made a suggestion to increase the size of the short position in the precious metals sector in case of the speculative capital (and to remain out of the precious metals market with long-term investments) and after examining what happened on Friday we are happy with this decision. Metals moved a little higher, miners moved a little lower, and if you diversified the short position in all 3 parts of the precious metals market, you are probably close to none in terms of the effect of Friday's price action on your portfolio.

The volume in GLD was very small - the last time we saw this type of volume was on April 1. It was not April Fool's joke, but an indication of lower prices, as gold didn't move above April 1, 2013 close ever since. Actually, on that day gold didn't do almost anything, and it has actually rallied on Friday (by half of one percent, but still that's a visible price increase) and this makes the implications of low volume even more profound and bearish. After all, tiny volume when nothing happened could have been expected (yet, gold declined thereafter), but tiny volume when gold moved higher suggests that the rally is indeed running out of steam. Miners declined despite metal's move higher, which by itself is also a bearish sign. The volume here was also relatively low, but volume during downswings can be low and it's not necessarily a bullish sign (the situation here is not symmetrical with a rally on low volume).

Summing up, we suggest keeping speculative short position in gold, silver and mining stocks 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
• GDX: $31.3
• HUI Index: 292

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 (yes, the current lack of reaction to dollar's weakness might be suggesting a move that low).

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 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