The USD Index declined once again yesterday and even moved slightly below its previous low. It moved below the medium-term support line based on weekly closing prices, but not below the one based on intra-day lows. Consequently, we don't view yesterday's actions as a real breakdown. Please note that the USD Index is now right at its cyclical turning point and the preceding move was down so the implications are bullish.

What's interesting about this decline is that gold and mining stocks didn't move to new highs (gold rallied on relatively low volume) and that silver actually declined.

The above is a short-term bearish sign.

Yesterday we discussed the True Seasonal patterns and we wrote that the next few days should provide us with some insights. The above is an indication that another move down could be just around the corner.

We previously compared the seasonality of the USD Index with the seasonality of gold and it seems that we should see gold outperforming the USD Index (reacting to its weakness but not really to its strength). For now, we don't see it on a short-term basis.

Conversely, we saw copper and the HUI-to-gold ratio move to their long- and medium-term resistance lines, respectively, and then move back down. Because of the recent decline in the stock market, we also see the RSI indicator based on the DIA ETF (DJIA proxy) at the 30 level, which marked local bottoms several times in the past years. Consequently, the DIA ETF could still move lower based on the short-term breakdown below the May high, but it's not a sure bet - it could rally soon as well. Dow is at the psychologically important level of 15,000, which supports the bullish outlook.

All in all, the situation seems to favor opening speculative short positions in the precious metals sector. We suggest doing so with half of the regular position as the situation is still somewhat unclear. If another move lower is about to begin, then we have a great entry price - right before the move. Stock have been declining more or less since the beginning of the month and the same is the case with the USD Index - and precious metals responded with a rally. The USD Index and stocks can rally shortly, especially given the dollar's cyclical turning point being just around the corner. Metals have just signalled that they are likely to react to bearish signals more than to bullish ones. Those of you who have examined the True Seasonal patterns for September know that the quality of projection increases before the end of the month, which means that if the decline is to happen, it's quite likely to happen before that time. Therefore, it seems quite likely that we will see it shortly.

To summarize:

Long-term capital: Half position in gold, silver, platinum and mining stocks.

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

Stop-loss orders:

• Gold: $1,393
• Silver: $23.80
• HUI Index: 287
• GDX ETF: $31.4

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