Before your editor (PR) left the office several days ago we prepared you for the coming days with a bearish outlook for gold, silver and mining stocks, short speculative positions and we outlined a few scenarios that would require adjusting the positions.

We saw a steady decline in precious metals' prices and no adjustments were necessary. The profitable short positions simply became even more profitable.

What's next? The outlook didn't change. In fact, on a medium-term basis, we saw several bearish confirmations and the probability of a move lower in the coming weeks increased in our view (75-80% or so). On a short-term basis we could see a small corrective move up, which is not worth betting on in our view because the medium-term trend is so strong. Please note that in 2008 when gold moved higher before plunging for the final time, there were several intra-week attempts to move higher after which gold finally declined. Similarly, a small move up here would not invalidate the bearish outlook, and we won't be surprised to see it (especially that silver is at its cyclical turning point after a visible decline). The analogy to 2008 is also the reason for which we don't change the stop-loss levels. At the same time we think keeping short positions intact is a good idea. We are planning to increase the sizes of the speculative short positions (and enter them in case of silver) if we see a corrective upswing and it will be a bearish confirmation by itself (for instance if it materialized on very small volume).

Here's what bearish factors we have in place right now:

• Gold price verified the breakdown below the long-term resistance line created by the July 2005 and 2008 bottoms (intraday lows)
• Gold price corrected 38.2% (Fibonacci retracement) of the 2012-2013 decline - it actually moved slightly above this level but failed to hold it and this invalidation was a bearish sign on its own
• Gold:CCI ratio (gold vs. other commodities) verified the breakdown below the support line created by 2008 and 2011 bottoms
• Gold already plunged in terms of virtually all currencies and gold:UDN ratio (non-USD gold price) confirms that
• HUI to gold ratio (gold stocks vs. gold) is already very close to its previous 2012 lows after having successfully verified the breakdown below its 2008 low
• Precious metals remain negatively correlated with the general stock market and the latter bounced off its rising medium-term support line and continues to climb (as we have been expecting it to)
• As Nadia Simmons emphasized in her latest Oil Updates, there seems to be a disconnection between gold and oil prices and bullish situation in the latter does no longer have to translate in to higher gold prices. This means that even if oil moves up, gold might pause or even decline at the same time. On a side note, it also means that if there's nothing going on on the gold market, there may be trading opportunities in the oil sector.
• The performance of the precious metals sector given a decline in the USD Index (PMs declined even though the USD Index didn't rally, so the decline is likely to accelerate once the Dollar Index does finally rally)
• The USD Index is once again very close to its medium-term support line and is very close to its cyclical turning point (this plus the previous point creates a very bearish combination even without taking into account the previous points from this list)

As you can see above, there are multiple bearish factors in play right now. Are there any bullish factors beside the fundamental outlook (which drives markets only in the long run)? Yes, the above-mentioned cyclical turning point in silver, combined with the simple fact that we saw a sizable decline in the recent weeks and a correction would be natural, and the True Seasonal factors. The True Seasonal tendencies are present even if the main trend is different this year (compared to the previous 10 years). The tendency for gold is to move higher in the very first days of September (gold didn't plunge immediately after the month started), then it "should" move lower at about 10th day of September (most of gold's current decline started on Sep 10th). As True Seasonal subscribers already know, the tendency is to see an upswing more or less at this time of the month (this week). Consequently, as we wrote earlier, a corrective upswing here wouldn't surprise us.

To summarize:

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

Trading capital: Short position: gold (half), and mining stocks (full) with the following stop-loss orders:

• Gold: $1,439
• HUI: 289
• GDX ETF: $32.6

Naturally, the "full" position doesn't mean using your entire speculative capital for a transaction. It means using the "full" size of the suggested one - you will find more information along with some hints on how big it should be (it's not investment advice, though) in our gold portfolio report (check out the images at the bottom of the report).

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