In the latest Premium Update we have emphasized that PMs' rally is likely to end in about 2 weeks, however gold and PM stocks have recently showed extraordinary strength, which suggests that the rally may pause much sooner than that.
The USD Index seems to be ready to re-test its recent high (we expect it to fail the test and decline). This would be temporarily bearish for PMs, but bullish in the medium-term, as USD would have "more room" to decline.
The general stock market is more or less rising, but the volume has been visibly lower in the past few days suggesting that the rally is running out of steam. Therefore, at least a small decline is to be expected very soon. The general stock market is highly correlated with PMs if one takes the 10-day correlation into account. This is usually not very significant, but since the situation on gold, PM stocks, and USD Index suggests that taking some profits off the table is a good idea, main stock indices provide a confirmation.
Therefore, it seems that closing the speculative long positions in gold and PM stocks is a profitable thing to do at this point. We've seen gold move over $40 higher (silver over $1 higher) since March 23rd when we've sent out the latest buy alert, so we may consider this trade a successful one. We realize that it might be tempting to hold on to a winning position in order to increase the gains even further, but according to our experience and signals coming from the market at this point, it seems that the odds favor a small temporary downturn soon. Even if the market moves higher from here, it seems that it would once again decline to where PMs are today during the next few weeks.
The signal is less clear for silver (and it is relatively close to a strong support), but if your position in the white metal is highly leveraged, it might be a good idea to limit it.
If we do get a correction from here, we currently don't expect gold to move below $1,100. Targets for silver and PM stocks are unclear at this point, although silver may not move lower than $17.80, and HUI is not likely to move below 410.
Based on the information available today, we expect the coming correction to provide us with a final verification that the precious metals market is to move much higher during the next several weeks.
As always, we will have much more to say in the next Premium Update. Should anything change before that, we will send out another Market Alert.
Thank you.
Sincerely,
Przemyslaw Radomski
