Yesterday we wrote that gold moved to the $1,400 level on Friday, which is also, approximately, 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. That's also the 38.2% Fibonacci retracement level based on the 2012 - 2013 decline (gold moved precisely to this retracement yesterday when it touched the $1.407 level).
We can see that gold moved to an analogous resistance line (based on the 2005 and 2008 bottoms) from the euro perspective.
Regarding silver, we wrote that it "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 currently about $0.36 above Monday's closing price, at $24.67. The move is certainly similarly sharp to what we saw in 2008 (back then silver corrected 38.2% of the decline before plunging once again). Interestingly, in 2008 silver corrected to the level of the previous local top and currently silver is at / very close to such a level as well (taking the post-April-plunge correction into account).
Unlike the XAU Index, which remains below this resistance level, 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, unlike gold and silver, and this is a bearish divergence. Please note that the volume seen during yesterday's move up was relatively low.
Meanwhile, copper once again moved to the rising resistance line (the neck level of the previously broken head-and-shoulders pattern) and the medium-term outlook remains bearish.
The USD Index moved up at its cyclical turning point and the general stock market moved up as well after we saw the 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 with the seasonal tendencies we usually see at this time of the year - according to the True Seasonal patterns - and it's 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, it we will have a strong bullish confirmation. The continuation of the strength of gold, silver and mining stocks (the latter didn't really show it on Friday) relative to the USD Index would also serve as a bullish confirmation - so far we've seen it for one more day (yesterday).
At this time it seems to us that the HUI:gold ratio does a great job explaining the current situation - 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 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
