On several charts gold moved back below its resistance levels and the gold:UDN ratio (or as we prefer to call it, the non-USD gold price chart) shows a close once again below the important resistance level created by the April bottom.

The breakout in gold was confirmed today, which "should" make the outlook much more bullish - it would normally be the case. What's not normal about this situation? That it's very similar to the early-June breakout (in multiple ways, as we showed in yesterday's Premium Update), which was also confirmed and lower prices followed shortly anyway.

Silver was right at the cyclical turning point and it declined a bit today but it was not a huge downswing. Does this invalidate the bearish implications from the turning point? No - the declines didn't use to follow immediately after the turning point, there were quite often a few days between the turning point and the real start of the decline. This was the case in April and in June. Consequently, the bearish implications remain in place.

The GDX ETF, representing mining stocks, invalidated its breakout by closing below the 61.8% Fibonacci retracement level as well as below the declining resistance line based on the late-January and March highs (these levels intersect at about $27.30 whereas GDX closed at $26.95). The volume accompanying the downswing was significant and this invalidation is a bearish signal.

The USD Index moved back above the 61.8% Fibonacci retracement level based on the June - July upswing, which means that the breakdown was invalidated. This makes the situation even more bullish for the Dollar Index in the short term.

It's interesting to compare the recent moves in the USD Index and precious metals. After Wednesday's move higher, the USD Index was more or less where it had closed on Monday, whereas gold, silver and mining stocks are well below these levels.

All in all, the outlook for gold, silver and mining stocks deteriorated today and it remains bearish.

To summarize:

Long-term capital: Half position in gold, silver, platinum and mining stocks. As far as long-term mining stock selection is concerned, we suggest using our tools before making purchases: the Golden StockPicker and the Silver StockPicker

Trading capital: Short positions (half) in gold, silver and mining stocks.

We are not ruling out the case in which we're going to see a breakout today (which is not likely, even though another small move higher could be seen), and in this case the short position would have to be closed. Consequently, we suggest placing the following stop-loss orders:

• Stop loss for gold's speculative short position: $1,356
• Stop loss for silver's speculative short position: $20.90
• Stop loss for the HUI Index's speculative short position (theoretically, as you can't short the index by itself): 273
• Stop loss for GDX ETF's speculative short position: $29.40

We suggest placing buy orders for the speculative long positions in gold at $1,105 and for silver at $15.20 (and closing the short position at that time - if these levels are reached). The analogous level for the HUI Index is 155. If gold moves to $1,105 but other market don't move to their targets - we suggest closing short positions in gold, silver and mining stocks and going long these sectors anyway. If silver or the HUI reach the target but gold doesn't, we suggest closing all above-mentioned short positions, but going long only the market that has reached its target. In this case you will likely hear from us shortly, but you know what our take is even before that happens.

Entry levels and stop losses for the above rather-soon-to-be-opened long positions:

• Gold: $1,105 (stop-loss: $970)
• Silver: $15.20 (stop-loss: $14.20)
• $HUI: 155 (stop-loss: 137)

These levels are slightly above the price targets to maximize the odds of entering the trade (if everyone thinks that gold will move to $1090 they will buy before it reaches this level and ultimately gold may not drop as low at all).

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 July, 2013 and we will send additional Market Alerts whenever appropriate.

As a reminder, Market Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent we will send you an additional small alert before posting the main one.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA