Gold and the GLD ETF both closed very close to their June 2013 bottom in terms of daily closing prices (they didn't reach that bottom in terms of the intra-day lows).

Mining stocks moved only a little higher yesterday and so did silver. In fact, silver closed the week below the rising long-term support lines - a bearish indication.

The Dow-to-gold ratio closed at 13.49 - much above the previously broken 12.50 level, but still significantly below the target level (15.00). The top in the ratio and the bottom in gold don't seem to be in just yet.

The outlook for the general stock market turned bullish as we saw 3 consecutive closes after the breakout above the previous high. It seems that the investment public now thinks that everything is indeed better and that the outlook for the stock market and the economy is great. Investors seem to have "bought" the Fed's bullishness. At the same time, gold seems unnecessary as a hedge and investors are very reluctant to buy it.

This means two things. The first thing is that gold has likely not finished declining as investors are now catching up to the thought that they don't need gold. The second thing is that we are likely not that far from the final bottom. One of the best moments to open long-term investment positions in a given asset is to do it when everything that could have gone wrong for this asset has (more precisely: when the majority of investors think that it has). The fact that investors already dislike gold combined with the negative momentum should not make us uncomfortable with this market, but excited, because we are likely to see the next great buying opportunity in the coming weeks. This might sound a bit distant, but if you take into account that this correction has been in place for over 2 years, several weeks is relatively close to the bottom.

The USD Index corrected after moving to the 81 level, but since the preceding move up was very sharp, we don't see anything bearish about this relatively small (0.10%) daily move lower. In fact, even a close at 80.50 or so would not change anything as far as short-term outlook is concerned. The cyclical turning point is very close in case of the USD Index (before the end of the year), so we might see a consolidation until that time and another rally thereafter. On the medium-term chart, the outlook for the USD Index is very favorable.

The above makes the outlook not that favorable for the precious metals sector, which will likely be hurt by the stronger dollar (on a side note, not all commodities react negatively - as Nadia Simmons has mentioned several times, crude oil and the USD have recently moved in the same direction quite often).

Consequently, the outlook remains bearish. The question is if we should open any short position at this time, since we already saw a pullback after gold moved briefly below the $1,190 level. The answer is: not yet. There has been no confirmed breakdown in gold from the USD perspective, and the USD Index itself is very close to the cyclical turning point, so we could see a small decline shortly (the most recent move was up).

To summarize:

Trading – PR: No positions.

Long-term investments: No positions.

Stop-loss orders for the speculative short position:

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