If you have been waiting for a pullback to add to your precious metals / mining stocks positions, it seems that it might be a good idea to do so now. The very recent decline in the PM sector appears scary, but there are still many signs that this was not the end of the preceding rally.

Generally, our view on the markets - given the previous Premium Update - is still up-to-date.

If we didn't see the bottom today, we don't expect gold to move much below today's low (not below $1155). Analogous level for the GDX ETF is $47.5.

The downside in silver appears to be about 50 cents lower (at $17 in the SLV ETF, and $17.30 in silver), but given that it has just corrected about $1, we would not recommend waiting for the final bottom as the "risk" of a quick upswing is too big to risk missing it.

At the moment the RSI on the USD Index is right at the 70 level (used to mark local tops in USD / bottoms in PMs) and the general stock market moved to the levels that used to stop this decline.

Silver does not outperforming (not sign of a final top) and is weak according to its cyclical tendencies (weakness might be seen as normal). Also, bottoms in the general stock market used to be accompanied by very high volume, and all points to the fact that today's session is going to end of very high volume. Moreover, there was no high volume in the GDX:SPY ratio.

In the latest Premium Update we wrote the following:

"(...) a consolidation is needed before it can move higher once again. This is something that Day-Traders may want to take advantage of by selling PM stocks now and waiting to re-enter after a visible decline (perhaps to the $49 level). Still this is not recommended for most Investors / Traders because the momentum in gold appears strong, and by exiting now one risks missing out on the late stage of the rally that could take GDX ETF to $54 level or so."

Therefore, at this point there is no evidence that this sharp move lower is anything more than a quick correction before the final stage of the rally in gold, mining stocks, and also silver. Consequently, we believe it would be a good idea to get back in with your speculative capital even if the market is to move slightly lower. We believe that the risk/reward ratio reward favors being long right now, and paying attention to this particular ratio is - based on our experience - the key to multiplying one's profits over time.

If we believe that the above information is no longer up-to-date, we will send out another Market Alert (if it's urgent), or comment on that in the Premium Update (if it's not urgent.)

Thank you.

Sincerely,
Przemyslaw Radomski