The beginning of yesterday's session appeared bullish for the precious metals market, but ultimately - after seeing metals' and miners' performance during the entire day - we view yesterday's session as bearish.

The Euro Index moved to the declining long-term resistance line without breaking it once again. Last week when we saw such move, the GLD ETF moved above $122. Yesterday all GLD managed to do was rally to $120.77 after which it declined and closed the day only 0.26% higher, at $119.69. Gold continues to underperform and yesterday's "strength" was not true strength. Gold remains below its long-term rising resistance line, so the outlook remains bearish.

We can say the same about mining stocks - they still underperform and they remain below key, strong resistance levels.

Silver moved higher yesterday, proving once again that it's the least predictable part of the precious metals market. Silver moved slightly above the stop-loss level yesterday, so the small short position was closed. Effectively that was just one fifth of the total open position (which had consisted of half a position in silver and regular positions in gold and mining stocks), so that's not a big deal (such possibility was why we had suggested opening only half of the regular position in case of the white metal in the first place). With this level of short-term uncertainty for silver, we don't suggest re-entering short positions, even though we continue to think that the white metal will move lower in the coming weeks.

With the FOMC decision pending, we were asked what we think the outcome might be and if keeping short positions is justified. Beginning with the latter, we think it is, as metals and miners are below their long-term resistance lines and continue to underperform - refusing to move much higher even when the Euro Index moves higher. They are not looking like they are starting a big rally here. They are looking like they are still holding up, but if there's a spark igniting a move lower, they could fall substantially.

What's likely to happen? As Matt Machaj, PhD wrote in the latest Market Overview report, no real tapering (meaning: tightening of the policy) is likely to be announced soon. We could see some kind of fake tapering, meaning that it would be called this way, but the implications would be very limited. Quoting from the December Market Overview report:

"The likely candidates for tapering are therefore asset purchase operations performed on MBS [mortgage backed securities]. Here the Fed could actually reduce the holdings. Yet as all Fed representatives signal to us, these shall not be major changes, but minor adjustments."

Now, the market's reaction to such news depends on how it fits the expectations and how much people will believe that something has actually changed when this "weak" tapering is announced. If investors are expecting no tapering at all and they react to the word "tapering" like it is indeed happening, then the USD will likely soar and stocks, commodities and precious metals can decline. If the markets get another "no tapering" message while they actually expect tapering to be announced, then we will likely see a temporary move up followed by another slide - similarly to what we saw in mid-September.

The situation is complex and the outcome is hard to predict based on the above, however, based on the technical indications, the big surprises should be to the downside, so the bearish outlook still prevails.

Still, we suggest limiting the size of the short position in gold at this time (closing half of it), as the risk of a temporary move up is now higher than just several days ago.

As mentioned previously, "we might see a bounce when gold reaches its previous 2013 low, so we suggest closing the speculative short positions in both gold and mining stocks when gold moves close to this level (at $1,190), but not before that happens. We do not suggest making adjustments to the long-term investment capital when that happens."

To summarize:

Trading – PR: Short position in gold (half), and mining stocks.

Long-term investments: No positions.

Stop-loss orders for the speculative short position:

• HUI Index: 214
• GDX ETF: $22.80
• Gold: $1,272

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.

The trading position presented above is the netted version of positions based on subjective signals from your Editor, and the automated tools (SP Indicators and the upcoming self-similarity-based tool). You will find more information by following links in the summary of the latest Premium Update.

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