Today metals and mining equities have been moving higher despite the weakness in the USD Index, and the development of the head-and-shoulders formation that we've mentioned in our last update.

This is a clear sign of strength, which is something much more significant than just today's price increase by itself. Before getting long on margin please consider also the less bullish fact - juniors' performance still suggests excessive optimism, and the GDX:SPY ratio has been rising today on very big volume. As you may recall, this is something that very often accompanies local tops.

The correction still appears likely to be seen soon, however, given today's strength it does not seem that the corrections would be very deep, when it materializes. The move that we had originally anticipated did not materialize and this has definitely not been our best trade. Still, the total value of the portfolio is still up since last month because of the increase in value of the long-term holdings.

So, what's a Precious Metals Speculator to do given the above contradictory signals? We are not happy to write that, but the risk/reward ratio that we believe is the most important indicator of what one should do next does not suggest any speculative position at this point. The decline is still likely, but not likely enough to justify a bet against the long-term trend. Would we suggest opening a bet on lower prices here? No, because gold moved significantly higher - above the previous highs - today on high volume. We don't suggest betting on higher prices with one's speculative capital (!) either, because metals have been rallying without a significant correction for over a month, and the GDX:SPY ratio moved higher on large volume.

Summing up, at this point we don't suggest having any speculative position open in the precious metals sector. We can always open a new position if we get favorable signals (for instance gold closing today below the previous highs despite the big intra-day rally), but that is not the case right now.

The above doesn't change our opinion regarding one's long-term investments - we remain bullish on the metals here and we believe one should hold them regardless of the possibility of the short-term correction.

We will keep you updated and let you know if anything changes.

Thank you.

Sincerely,
Przemyslaw Radomski