Gold moved to the $1,400 level on Friday, which is also the long-term resistance line based on the 2005 and 2008 lows. That's the most important rising support line that was broken in June. It's also the 38.2% Fibonacci retracement level based on the 2012 - 2013 decline.
Silver moved higher and it seems to be on its way to correct the full 38.2% of the preceding decline, just like it did in 2008 before plunging once again. This resistance is about $0.60 above Friday's closing price, at $24.67. On of the most important reasons for which we put the previous stop-loss orders so close was the possibility that silver would move to this level - we wanted to get out well before a large part of this move.
The HUI Index moved back above the 61.8% Fibonacci retracement level that we had referred to as critical. That's another attempt to move back above this level. The previous ones were quickly invalidated. At the same time, miners didn't move above their previous August high, like gold and silver did and this is a bearish divergence.
The USD Index moved up at its cyclical turning point and the general stock market moved up as well after we saw an RSI buy signal based on the DIA ETF. Both moves have been small so far and the precious metals sector didn't really respond. In fact, metals rallied. Friday's action is in tune which we usually see at this time of the year - according to the True Seasonal patterns - and its a bullish sign. Still, based on previous price patterns it seems that the decline is not over just yet. If we see silver move above the 38.2% retracement and stay there, we will have a strong bullish confirmation. A prolonged display of strength in gold, silver and mining stocks (miners didn't really show it on Friday) relative to the USD Index would also serve as a bullish confirmation.
At this time it seems to us that the HUI:gold ratio does a great job explaining the current situation - a pullback after a major breakdown.
To sum up:
Long-term capital: Half position in gold, silver, platinum and mining stocks.
Trading capital: No positions
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 September, 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
