In short: No changes and no positions.

We saw another move lower in gold and the situation basically remains unchanged from yesterday. Please take a look below (charts courtesy of http://stockcharts.com).

Gold didn’t do much yesterday. It declined initially but then reversed and closed where it had closed on the previous day. Gold is still close to the 50-day moving average, but at this time it seems that the current situation is more similar to what we saw before the top in October 2013, not right at it. The reason is that back in October, a few days after the top the decline was well underway and at this time we‘ve only seen a mild move lower. Consequently, it’s more of a pause – something that we saw before the final move higher.

Taking intra-day action into account alone, the implications are bullish. Intra-day reversals are usually followed by the continuation of the move that we‘ve seen in the final part of the market session. In this case, that move was up.

Yesterday, we commented on the gold stocks to gold ratio in the following way:

The medium-term resistance line was reached, which is quite a big deal. The last time that this line was touched, was when metals and miners topped in late October 2013. We’re at the same line once again. More precisely, we were on Tuesday, on an intra-day basis.

The declining resistance line was reached once again, which has bearish implications.

The HUI Index moved slightly higher yesterday, which didn’t change anything on the chart and in the outlook.

All in all, if gold stocks move higher, they will likely not move far, as the medium-term resistance line is just around the corner.

Miners were quite likely to move higher on a short-term basis based on the breakout above the declining short-term resistance line (created by intra-day highs; marked in black on the chart below), but they are likely to stop the upswing quite soon, because of the medium-term resistance line. You can see the short-term breakout and the following move on the chart below.

Please note that the rally that we saw yesterday materialized on relatively low volume, which is a bearish sign.

Before we finish off, let’s take a look at the USD Index, just like we did yesterday.

Most of what we wrote yesterday remains up-to-date:

The key thing that we see on the above chart is that the USD Index seems to have finished its post-breakout correction. It rallied once again and it seems to be on a verge of another move higher. As Nadia wrote yesterday, the outlook for the EUR/USD is bearish, which makes it bullish for the USD Index. However, a slight move higher might be necessary before the rally in the USD Index becomes very likely (it’s still likely now).

Moving back to the USD-gold link. Gold didn’t react strongly to the dollar’s rally and miners even managed to go up. This is a sign of strength. However, at this time it’s quite possible that investors were also waiting for the rally in the USD to become more probable before dropping gold and mining stocks.

Yesterday’s USD and gold action – gold’s move lower in the first part of the market session along with the dollar’s small decline, suggest that this link doesn’t work on a very short-term basis at this time. Consequently, the above-mentioned sign of strength might have been misleading.

The good thing is that we are still likely to see higher USD values, which will provide us with lots of information regarding gold and the rest of the precious metals sector. If the USD continues to rally and gold refuses to decline, we will know that another significant move higher will be seen rather soon. However, it seems too soon to say so now, especially that the medium-term trends in the precious metals market remain down.

Taking all of the above into account, we get the same result we got yesterday. The situation on the precious metals market is rather unclear for the short term but remains bearish for the medium term. Our best guess is that we will see a decline in the coming weeks but not necessarily right away. We will consider opening speculative short positions once we see some kind of confirmation.

To summarize:

• Trading capital: No positions.
• Long-term capital: No positions.

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 each trading day 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).

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