The volatility has been very high today for the precious metals market, and silver was very close to its target of $31, so we believe that you might consider this quick update as useful.

There are several bullish factors present on the precious metals market at this point, such as the gold : corporate bonds ratio (price of gold relative to the corporate bonds index has just broken out of a strong resistance level) and the fact that gold, silver and mining stocks have broken above their previous highs.

However, we have just seen a spike in the GDX:SPY ratio and an "extreme" reading from our indicator, both of which suggest that the local top is close. The GDX:SPY ratio is the precious metals stocks' performance relative to other stocks, and when the volume for the mining stocks suddenly dwarfs the one for non-precious-metals-related equities, we are likely to be close to a local top. This signal has been very reliable in the past - the previous two times we've seen them was early October and early November, right before declines.

As mentioned in the opening paragraph of this message, silver has moved to its target level today, and declined afterwards. The general stock market - measured by the S&P 500 Index is right at its 61.8% Fibonacci retracement level (as visible on the very long-term chart in the latest Premium Update), which may mean that a pause will be seen.

From the medium-term perspective, it does not seem to be the final top for this rally. At the moment of writing these words there is no gold- or silver-related headline on the front page of http://finance.yahoo.com - which one might expect to be the case given the price levels achieved by both metals. The lack of excessive optimism is encouraging, because it means that many people are still waiting on the sidelines and could jump in as prices move higher thus causing it to rise even further. In short, from the medium-term point of view, the situation still looks favorable.

So, what should you do given the current situation in gold, silver, and mining stocks? It seems that this might be a start of a short-term consolidation, but there are more reasons to believe that the rally will continue than it was the case when we had previously suggested closing one's long-term positions. Right now, we expect another move higher on relatively small volume to confirm the short-term decline scenario. Since the momentum is strong, we do not suggest closing you speculative nor investment positions. Instead, we suggest entering a stop loss order (in other words we suggest selling the following assets if the price goes below the below mentioned levels):

Gold: $1,380 Silver: $29 HUI Index (mining stocks): 565

Generally, we usually don't suggest using stop loss orders, because it is rarely the case that price is the only relevant factor that needs to be considered, however there are two factors that need to be taken into account:

1. Metals have been rising very rapidly in the past weeks and we have now substantial gains (having entered long positions right at the previous bottom with gold at $1,340, silver at $25.47, and mining stocks with HUI at 530 on Nov 16th, when we've suggested doing so in a Market Alert), so securing some of them might be a good idea given currently lower risk/reward ratio.

2. The precious metals market is often characterized by declines that are more rapid than rallies preceding them. Consequently, it might be difficult to exit one's positions if we see a dramatic decline soon. With stop loss orders in place, the risk is minimized.

As far as long-term investments in gold, silver, and mining stocks are concerned, we don't think that one needs to exit these positions at this point.

As always, we will keep you updated, should anything change. The next Premium Update is scheduled for Friday, Dec 10th, and among other things it's going to include the graphical representation of the points made above, and the updated version of our junior rankings.

Thank you for using the Premium Service.

Sincerely, Przemyslaw Radomski