The USD Index is currently extremely overbought, while the general stock market might have put a second bottom here. Taking into account closing prices on the SPY ETF it is right at the previous bottom. At the same time silver is about $1 above its early-May low, which means that it's relatively strong here.

The relative strength is even more visible on the gold market - it did decline recently, but given the size of the rally in the USD Index, the move lower was relatively small. It suggests that when the U.S. Dollar corrects slightly, gold is likely to rally more than USD declines. In other words, if the decline in USD is average, the corresponding move up in gold is likely to be big.

Speaking of the dollar's correction - please note that at the beginning of May 2010, the small correction in the USD Index corresponded to a massive rally in silver, and since the rally in the USD has been so huge, at least a small correction is very likely.

Moreover, daily seasonals for silver (featured in the latest update) suggested bottom around May 19th, after which price of silver rises above the early-May levels. Please recall the exact price action at the very beginning of May 2010. We've seen a big decline followed by a much bigger upswing - based on information available today, this is a probable outcome also in the following days/weeks.

On a positive note, gold held up much better than gold stocks, so taking some profits - as mentioned a week ago - in the latter sector was in fact a good idea.

Summing up, the current move lower is bigger than what was probable to take place, but at this point it seems more like a buying than selling opportunity.

If the above points are no longer up-to-date and we will change our mind regarding the precious metals market, we will send out another Market Alert, even if it means sending it several minutes after sending this one.

Thank you.

Sincerely,
Przemyslaw Radomski