Gold and mining stocks moved to their very recent highs yesterday. We had already been at these price levels (with stronger USD) just several days before that. However, the story is different with silver - it moved higher above the recent high and showed strength which continues today (thanks to the stop-loss order we got out before a large part of the move took place). Let's take a closer look at the white metal.

In 2008 the corrective rally unfolded much faster than it did this week, but so did everything else in 2008. Relatively speaking, in the context of the current, over 2-year long correction, the current move up is quite similar to the pullback we saw on September 2008. Back then the short-term downtrend was invalidated (the same has been the case recently). Silver moved to medium-term support before the local top was formed. At that time the 50-day moving average was acting as support. Right now, the 61.8% Fibonacci retracement level seems to be playing this role. That level also coincides with the 2008 high. In 2008 the move to the medium-term support was what happened exactly before the final plunge. It was the first time when silver looked like it was about to take off, when the final plunge started.

Gold has already moved to its April bottom (it's now verifying the breakdown the second time). The same is the case with mining stocks. They have already verified the move below the 2008 bottom and they are doing it again right now. The situation in silver is different. It has not verified the breakdown below the April bottom and it's pulling back closer to this level ($22) now. It hasn't reached it though, but it has reached other strong resistance levels. The point is that silver's strong performance recently is simply catching up with what gold and miners had done previously. Silver has (almost) moved to the level that gold and mining stocks reached several weeks ago.

The precious metals sector moved higher along with a small rally in the USD Index, which is a bullish sign, but at this time that's just a temporary phenomenon. If this tendency stays in place for several more days, we will move back to the long side of the market. However, so far, the 2008-now analogy suggests caution. The USD Index seems to be ready to rally significantly in the near future. If metals and miners don't decline based on such a move in the USD Index, we will have a bullish sign and a confirmation that being long, not short is justified. However, at this time, it seems that the next big move will be up in the USD Index, and down in metals and miners.

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, 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 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 and mining stocks and going long these sectors anyway (along with silver). If 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.

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As a reminder, we have just launched a new service: the Market Overview monthly reports that focus on the fundamental and economic aspects of precious metals investing. We encourage you to check them out. It's less than $10 and it gets you 2 reports - the one that we just released and the upcoming one. You can sign up here.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA