Based on yesterday's developments on the precious metals market (and also on what we see right now), namely in price action and corresponding volume level, maintaining open speculative long positions is no longer justified from the risk/reward point of view.
The volume was relatively high during recent downswing when compared to similar situations in the past. Up to this point the situation was no different than what we've seen during the previous post-bottom rallies; however this pattern has been broken yesterday. Yesterday's decline would not be something to worry about if it was not accompanied by significant volume. However that was the case this time, and it was not the case during the previous rallies. This suggests that what we've seen recently is not a beginning of another rally, but rather a counter-trend move, and the short-term tendency is in fact bearish.
Moreover, gold has corrected 38.2% of its previous decline, which means that it's ready to move lower. Additionally the USD Index has moved below the support line (breakdown not yet verified) and as we mentioned earlier gold used to follow the USD Index with a slight delay.
Both: silver and gold viewed from the non-USD perspective moved lower (below their support levels) as well. Mining stocks (XAU Index) is right at its strong support level, and if it's broken the following decline (if the breakdown is confirmed) could be quite dramatic.
If we see a quick reversal here, we might suggest re-entering long positions - not necessarily small ones. If we get a confirmation of a breakdown, a short speculative position will be more appropriate. For now, we believe no speculative position should be opened, until we see a confirmation of either of the abovementioned outcomes. We will be particularly monitoring mining stocks (XAU Index) and check how will they perform in the following days relative to their 2008 highs.
We believe that long-term investments should still be kept intact.
As always, we will keep you updated, should anything change.
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Sincerely,
Przemyslaw Radomski
