Gold declined once again yesterday and the GLD ETF moved to the medium-term declining resistance line based on the August and September highs. The breakout above this line is what started the previous move up about a month ago, so the move back to this line is quite significant.

Spot gold closed slightly below the rising support line based on the June and October intra-day lows, but in terms of closing prices we just saw a lowest daily close since July 10, 2013. The breakdown below this line has been small and is unconfirmed at this time and there has been no breakout below the declining resistance line (the one that's been touched in case of the GLD ETF).

Gold and the GLD ETF both declined on relatively big volume, which confirms that the decision to double the size of the short position that we made on Nov. 6, when gold was trading close to $1,315 was correct.

Mining stocks didn't decline yesterday in a significant way and it seems to us that they are waiting for directions from the general stock market. If stocks decline shortly (a likely development in our view), miners might catch up with gold and silver and decline significantly once again.

However, for now the decline has been too small to make the situation even more bearish than it was before yesterday's session. On a very short-term basis gold and silver might be viewed as oversold so we could see some kind of consolidation here.

In yesterday's Market Alert we wrote the following:

"Meanwhile, silver closed below the rising support/resistance line for the second day, 'somewhat confirming' the breakdown. We would like to see a third daily close below the line to say that the breakdown has been confirmed."

The breakdown is now confirmed as silver declined significantly yesterday. Silver moved close to the Oct. 1 and Oct. 15 intra-day lows and then corrected, but in terms of daily closing prices it's almost $0.50 below these lows.

Another bearish sign is that yesterday's decline was accompanied by only a small move higher in the USD Index. Since it seems that gold didn't need much of an impact from the USD Index in order to decline, we can conclude that the gold market is quite weak at the moment.

From the long-term point of view, the Dow-to-gold ratio has moved to its 2013 high, even though gold hasn't moved to its 2013 low just yet. If we see a breakout above the 2013 high in the ratio, the next strong resistance, and a target, will be the 15 level - the 2008 highs. With Dow Jones Industrial Average where it is now (15,750) the ratio of 15 would mean gold at $1,050. This not our precise target, but it's actually quite probable that gold will move close to this level before the final bottom is in.

Taking all of the above into account, we can conclude that, while the medium- and short-term outlooks remain bearish, the situation is not yet bearish enough for us to suggest selling/hedging the long-term investments in the precious metals sector. At the same time, we are keeping significant (meaning regular, and not half-size) short positions in case of the speculative capital. If we get to see a correction to the upside in precious metals and we see exceptional weakness during it (for example a very small move up on low volume that is accompanied by a relatively significant decline in the USD Index), we will quite likely suggest selling/hedging the long-term investments in the precious metals sector. For now, the medium-term breakdowns are either not confirmed or not significant enough.

To summarize:

Trading – PR: Short position in gold, silver and mining stocks.

Long-term investments: 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

Stop-loss orders for the above-mentioned speculative short positions:

• Gold: $1,392
• Silver: $23.90
• HUI Index: 268
• GDX ETF: $28.80

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) 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