Gold itself declined last week but the decline was not sharp - which is in tune with what happened in early June and also in early April. The declines were relatively small initially, but after 2-3 weeks from the the local top, the declines accelerated rapidly. This is what we expect to see shortly (within 1-3 weeks) once again.

The SLV ETF declined a bit below its short-term support line last week, pulled back to it, and declined once again, confirming the breakdown.

On Friday we saw a big drop in the HUI:gold ratio - gold stocks underperformed gold heavily, which seems to confirm our previous theory that their strength in the previous days was just a temporary phenomenon and not a sign of a true bottom just yet.

We would like to discuss one long-term event that took place (or more precisely, didn't take place) and that's quite important. If you recall the situation with gold priced in the British pounds, there was a small breakout above the long-term declining support line (based on the 2005 and 2007 bottoms), but we wrote that it was not really meaningful as the chart was a very-long-term one (monthly candlesticks) and that it would be important where we saw the monthly close. It closed the month without a breakout and this month we have not seen a move above the declining line - it seems like the breakdown is being confirmed here, not the breakout.

The Euro Index touched its declining resistance line without breaking it and the top may very well be in, which is a bearish factor for the precious metals sector. Here's what we wrote in our previous Premium Update:

"Another bearish factor on the above chart is the declining resistance line based on the January top and the June peak, resistance which may stop the rally - currently close to the above-mentioned 133 level. If the euro declines, we might see another head-and-shoulders pattern on a smaller scale."

The USD Index has been moving higher on average with quite significant intraday volatility. The important clue here is that the daily downswings didn't make gold rally as much as dollar's rallies made gold go down. Gold's underperformance relative to the USD Index remains in place and is a bearish indication.

All in all the outlook remains bearish for the precious metals sector.

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 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 August, 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