Yesterday gold moved slightly higher and so did silver. Mining stocks moved higher more visibly.

The above gets particularly interesting when we compare it with what the stock market did - and it declined. This confirms the current negative link between stocks and metals and, at the same time, is bearish information for metals, as the outlook for stocks didn't change - it remains positive as stocks didn't move below the important support levels. Stocks simply pulled back to their 50-day moving average (DJIA) - a small breather after a sharp 4-day rally.

Gold didn't close above the important support levels, which have now turned into resistance (the 38.2% Fibonacci retracement based on the entire bull market and the neck of the completed head and shoulders formation), so yesterday's move up doesn't change anything. Silver didn't close above its 2008 high, so there's also no change from this perspective.

Moreover, the move higher in gold materialized on relatively low volume, which is a bearish sign. The move higher in mining stocks took place on average volume, but in case of the GDX ETF, we didn't see a move back above the August lows, so it's not as bullish as it might seem at the first sight.

Two bullish factors are: miners didn't decline yesterday before the end of the session and they closed at the session's highs. The second thing is that the HUI:gold ratio closed above its 2013 low. The weekly close will be of greatest importance here, as the breakdown and moves in the ratio are of long-term nature, but nonetheless this already makes the outlook less bearish.

Overall, we think that it is still bearish enough to justify keeping small short positions in the sector (half of the regular size) and at the same time being in the market with only half of one's long-term precious metals investment capital.

To summarize:

Trading – PR: Short position (half of the regular size of the position) in gold, silver and mining stocks.

Long-term investments: A half position in gold, silver, platinum and mining stocks. As far as long-term mining stock selection is concerned, we suggest using our tools before making purchases: the Golden StockPicker and the Silver StockPicker

As always, we'll keep you - our subscribers - 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 October, 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