We've recently received many e-mails, in which Subscribers ask if the top is already in, so we would like to take this opportunity to let you know what we currently believe is most likely to take place in the precious metals market. The markets have been very volatile in the past few days so it could be difficult to keep one's perspective and follow the daily emotionality. In order to prevent that, let's take a look at what we have and what we don't have.

At this point we see the following bullish factors:

- Very strong momentum in gold, silver, and PM stocks confirmed by high volume
- Breakout above previous high in gold,
- RSI on platinum is not even close to the 70 level,
- USD appears to have topped (it didn't have much influence on the prices of PMs, though)
- Silver:gold ratio has yet to spike before a major bottom is confirmed,
- The volume in the GDX:SPY ratio is low which is not a topping signal,
- PM stocks are generally not underperforming PMs

However, we also have the following bearish factors:

- Overbought reading in the Gold Miners Bullish Percent Index
- Overbought from the RSI in the GDX:SPY ratio (not confirmed by volume, though), gold and PM stocks,
- Analysis of the 1.618 ratio applied to gold and silver from the non-usd perspective suggests that local tops have just been reached
- Analysis of daily seasonals for May suggests a weekly decline or so
- Too much optimism - we've seen many remarks in the media about gold breaking above its previous high.

Plus:

- We have short-term unclear situation on the general stock market (still, slightly bullish), but PMs were able to move in their own way regardless of the severe plunge in the main stock indices,
- The readings from our correlation matrix are mostly upside-down meaning that gold has been recently rising with the USD Index, and in the opposite direction to the general stock market. This may be very bullish in the coming months.

We realize that the above descriptions might seem perplexing without corresponding charts, but we wanted to emphasize that there are many more factors that need to be considered than just the price alone (+ we will provide you with details in the following Premium Update.)

Of course, the question here is if you should sell or buy more given the current market juncture. As you may see, the situation is rather complicated at this point, and we must take into account that this alert is going to be read by Investors/Traders with a whole range of approaches toward the market - from Day- and Option-Traders to long-term Investors, so we will first describe what we believe is the most likely outcome from here, and then we will move to the suggested actions.

The most important point here is that the optimism is just too high at this point, which suggests that a breather is needed before prices of PMs and PM stocks can move higher. However, that is not a very precise indicator as far is timing is concerned, thus it doesn't necessarily mean that the top is already in. Given the strength of the momentum (confirmed by volume) it seems that PM stocks may need to slow down before the local top (also in gold) is reached. This is what we usually see before the top is in, and we didn't see it so far. Additionally, we didn't see a price increase on a very low volume, which is a strong confirmation of a top.

In the previous updates we have mentioned that December 2009 highs appear to mark the key resistance levels for this rally. However, the strength of the momentum is bigger than we had originally expected, and the size of the volume confirms that, which consequently means that the PM market may go even higher before the final top for this rally is in. Now, we may have several weeks of small consolidation here, but it doesn't seem to mark the beginning of an important downleg at this point. Based on what we see today, it seems that this rally could take gold to $1,280, silver to $21, and we could see the HUI Index at 520 ($56.5 for GDX ETF) or so.

This would mean that the mining stocks are to underperform in the near future (before the top), and consequently it seems that if one is considering limiting their exposure in the PM market, it would be a good idea to sell PM stocks while keeping the metals.

Summing up, this is not a sell alert, but if a lot of your speculative capital is currently in the mining stocks (or even in options on these stocks) you might want to limit these positions, as the risk/reward ratio for this part of the PM market is not that favorable anymore (it's even less favorable for short-term options on PM stocks). Besides, if you've entered the market when we've suggested doing so in the previous alerts/updates, this position has already generated you substantial profits.

If we see a significant sign of weakness in the market before posting the next Premium Update that will make us change our mind about regarding the above analysis, we will send out another Market Alert, even if it means sending it several minutes after sending this one.

Thank you.

Sincerely,
Przemyslaw Radomski