The mining stocks have been insignificantly outperforming gold for a few days now, which suggests that we might see a rally in the coming days - this is also confirmed by the current True Seasonal tendencies. As you have read yesterday, we don't think this rally will be significant and we don't think that it's worth betting on, as the medium-term trend is down and there are multiple bearish factors on the horizon. We outlined them on Monday and they remain up-to-date.

In other news, if you recall the recent shocking events that took place on Cyprus (seizure of deposits) - we wrote that the most important thing about it was that investors can no longer view bank deposits as safe (if they had in the first place).

Quoting the March 25, 2013 Market Alert:

"(...) make it obvious to everyone that they should have wealth stored at least partially in an asset that is much safer than bank deposits. Gold and silver (especially physical, and especially geographically diversified), should come to many investors' minds."

We didn't have to wait long for another similar event. It didn't get as much publicity so far, but it seems that it should. Isn't nationalization of half of the retirement funds a big deal? Of course it's not called like that - it's called "pension overhaul", but that's what effectively is taking place in Poland. $37 billion. There was a quite good (in our opinion) pension system in Poland - a hybrid of capital (half went to private pension fund) and the official pay-as-you-go system (those who work provide funding for pensions of those who don't). The former provides a good protection against demographic risk (while being vulnerable to market risk) and the second provides a good protection against market risk (to some extent that is) but at the same time is vulnerable to the demographic risk. Together, these systems provided a nice diversification (and the capital part provided a diversification on its own thanks to various asset classes in the funds). The above is being destroyed. Why? We'll quote the article from Forbes:

"So why did the current regime in Warsaw do something so blatantly self-destructive and immoral? Simple: politics. The incumbents are unpopular, and the economy has slowed down (no surprise, given Europe's general condition). Duped by the false Keynesian dogma that government spending stimulates growth and goaded by the age-old instinct to shovel out money and goodies to buy votes, the Polish pols in power succumbed to short-term temptation. Polish law bars the national debt from going above 55% of GDP. By seizing the bonds and declaring them null and void–voilà!–the pols have suddenly made the restrictions on spending and the resultant deficits disappear, and the spending spigot has reopened. The government thought this thievery would be less unpopular than trying to raise the debt limit."

Shocking, outrageous and ineffective. Will other countries follow this road? We hope not, but at the same time we think that it will happen sooner or later in the above form or the other. Of course, it will never be announced as nationalization, there will be misleading and nice names for it. What does it mean to us, as precious metals investors? Just that we are correctly assuming that this is the sector to be involved in as far long-term investments are concerned. Here's a food for thought: while everyone (or at least a lot of investors) are afraid of gold confiscation it turns out that it is the financial assets that are being confiscated. Based on the recent history, it doesn't seem that gold is more vulnerable to confiscation than any other asset class.

All in all, it seems that the precious metals sector continues it's medium-term decline and that we could see a small bounce shortly. In our opinion the risk/reward ratio favors keeping the speculative short positions intact. At the same time please keep in mind that we suggest having some precious metals in the physical form (as insurance) anyway.

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