Over the weekend we have received several interesting questions and we believe that addressing one of them right away (instead of replying in this week's Premium Update which will be posted on Wednesday) is a good idea. In short, we were asked to "explain why, in view of the perception of imminent bond buying next week we are still in favor of shorting the miners."

The short answer is that if there is a "perception of IMMINENT bond buying" then the bond buying is already a factor that is in the price of all assets, and when it actually takes place, it should not really affect prices. Consequently, it was very much in the price when we analyzed the charts for the latest Premium Update and this factor was included in our analysis and summaries. Just because you don't directly see hundreds of events that impact markets on each chart it doesn't mean that they are not there. All of them are taken into account when prices and volume are determined, but this can take place to the extent that a piece of information is known to the market. Since ECB's reassurance that the euro will get all the support that it needs to not to fall apart is well known, it is in the price, thus in the charts, thus in our analysis.

Furthermore, if - given this important development - miners rallied insignificantly (which was the case last week), then this is another form of underperformance and a bearish indication.

Technically, what we see right now is similar to the situation in mid-June. Gold moved above $1,600, miners moved a bit higher (underperforming gold) on volume that was slightly above average and SLV topped below 50-DMA during a day when the volume was high relative to the previous ones. Back then mining stocks rose along with the general stock market, but when the latter corrected, miners declined more than they gained previously.

Here's part of another letter about the same topic: "Europe eases first, somehow, someway, and sometime soon - because they have to, now. At that point, Bernanke won't have to - for a while longer, anyway. My point being, so far as gold goes, the focus on Bernanke right now is somewhat misplaced. The euro is the real key. It seems you are building a very significant euro decline, or maybe crash. All I can say is that the world has been ending a lot in the last 3 years, but, alas, we are all still here somehow. I have learned not to put much stock in the phrase "this time it's different"."

We realize that euro is very important - that's actually the very first chart that we provided in the latest update. "End of the world" should theoretically be positive for gold, but our speculative position here is not based on it. It is based on multiple factors and two of them are: euro's decline and miners underperformance. Will "saving euro" by monetizing debt cause the value of euro to rally? In other words - will increasing supply of something (euro) increase its price? Surprisingly, markets believed so, because they viewed the only alternative as euro's demise. However, since this is against one of the basic economic principles (increased supply drives the price down), the rally in euro doesn't look strong at all.

In fact, it seems that investors cheered based on the announcement that everything necessary to protect the euro area will be done. However, as they realize that it will be done through monetary easing and thus decreasing the value of euro, their enthusiasm will likely fade away.

Consequently, the points that we made about precious metals on Friday remain in place.

Thank you.