In yesterday's Market Alert we wrote the following:

If the USD Index consolidates or declines some more, it seems that we will see metals bounce a little, similarly to what we saw in early June. If the USD Index rallies shortly, we may see a big drop in the prices of metals without another pullback.

Either way, the outlook for the precious metals market remains bearish and short positions in it remain justified. If we hadn't already suggested doubling the size of the short position (on July 26, when gold was $50 higher than it is today), we would have suggested it today based on the above bearish signals. Since the short position is already significant, we simply suggest keeping it.

The first scenario played out. The USD Index declined by 0.38 to its 61.8% Fibonacci retracement level based on the February - July rally. The metals' and miners' reaction was - once again - very weak. They basically did nothing, which is particularly visible in case of mining stocks which had previously declined heavily and some sort of pullback would not have surprised us given the dollar's decline. However, miners moved up slightly higher early in the session only to lose these gains before the session was over.

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