This is not a speculative buy/sell signal, but given the recent volatility and action on the general stock market, I believe you would appreciate a quick update.

The general stock market has been recently moving higher and today we've seen it move above the January 2010 high. To be exact - not only did the SPY ETF fund (S&P 500 proxy) move above it, but it was also the case with the DIA ETF (Dow Jones Industrial Average proxy.)

Since stocks have been recently highly correlated with gold, silver and PM stocks, this indicates that PMs may turn up relatively soon.

The PM market wasn't recently correlated with the USD Index, but since that was the case during most of the bull market it is still worth keeping eye on. This week the USD Index has broken below its rising trend channel (and the breakdown has been verified), which might soon become a factor driving PM prices higher. Please note that the USD Index moved lower right after the cyclical turning point marked on the USD chart (in the latest Premium Update) with the red vertical line.

Therefore, both key drivers of PM prices have currently turned bullish and on top of that we have just seen the buy signal from the SP Short Term Gold Stock Bottom Indicator. So, why this not a speculative buy alert?

There are several reasons:

- Our other indicators from the Premium Charts section did not confirm the bullish signal,

- The recent "breakout" of the general stock market was verified only by the SPY ETF. It was not verified by the underlying index (S&P 500), DIA ETF (and the Dow Jones Industrial Average) - they did not close above their January highs for three consecutive days on a reasonable volume, so the risk of a serious decline is still not low,

- The similarity between the recent action in the metals and the situation in August 2009 suggests another small (in gold, and a bigger one in silver) move down before the next big rally begins.

Consequently, based on the previous performance of various markets and the current correlations between them it still seems that we will continue to see similarity between the August 2009 situation and today's situation, at least in the near future. In other words, PMs are still likely to move temporarily lower from here before the next big rally. At the same time, the general stock market would test their January 2010 high and (possibly) verify it as a support.

As mentioned in the latest Premium Update - "one of the things that would indicate that the PM market is ready to move higher would be the return of the negative correlation between USD Index and gold." If the abovementioned decline in PMs is accompanied by a move higher in the USD Index (perhaps as a re-test of the previous high), it would serve us as a confirmation that the next big rally is likely to begin very soon.

Should the situation change and the points made above are no longer up-to-date, we will send out another Market Alert, or comment on that in the next Premium Update.

Thank you for using the Premium Service.

Sincerely,
Przemyslaw Radomski