The USD Index has moved to the upper border of the declining trend channel (no breakout yet) and it moved to late-2010 low - in terms of weekly closing prices (again, no breakout yet). This move took place on strong volume (as seen on the UUP ETF) and was preceded with a 2-day consolidation on low volume, so a move above aforementioned resistance levels is quite probable. This would be bearish for gold, silver and mining stocks.

The general stock market has been declining for a few weeks now and it has just moved lower on huge volume. Similar volume accompanied local bottoms in the past so we might be looking at one now. In the past few weeks precious metals have been moving rather independently from the main stock indices so this doesn't seem like an overly bullish factor at this point, but it gives us a slight bullish bias.

Please note that we mentioned "local bottom" regarding stocks - at this point it still seems that we are going to see a decline during the summer months, so what we could be seeing here is just a smaller, contra-trend rally.

Summing up, the "background info" suggests that we might see a small rally before the decline continues. Let's take a look at the situation in metals.

The volume in gold was significant as it moved a little higher, which by itself is a bullish sign, however, this was not confirmed by analogous action in silver and mining stocks. Moreover, both: gold and silver are below their rising trend channels (actually, silver is below two of them) so breakdown below the support levels created by their lower borders has been verified. This is a bearish factor. The seasonal tendencies are in play right now which suggests a bigger move lower in the coming weeks.

The important point is that two of our indicators have flashed a buy signal - and one of them was our SP Gold Stock Extreme Indicator, which - as you might recall - has been particularly effective in the past few years. Without these signals we would not view the situation as much different from what we've seen on Friday. However, we have in fact seen these signals and we should not ignore them.

So, the question remains if they changed short-term picture or the medium-term one, or perhaps both. In our view, the medium-term picture has not changed, as the bullish factors that we have mentioned above are of short-term nature. Consequently, we believe that being partly out of the precious metals market with one's long-term capital is still a good way to go.

On the other hand, the short-term picture is rather mixed with the most probable scenario being a small rally on declining volume that will be followed by the continuation of the decline. In other words, the situation on the precious metals market is less short-term bearish now than what we saw just a few days ago. Consequently, we believe the bet on the lower prices on of precious metals should be closed. Actually, if your bet was 50/50 on lower prices of gold and silver, you will (unless you have huge transaction costs) be realizing a profit.

On a side note, we also have received a few "you're wrong" messages - thank you, your feedback is always much appreciated. However, we would like to ask you to supplement such comments with arguments backing them because we would like to confront these reasons with our thoughts on the market. Without providing details, we cannot provide any comments nor can it influence our analysis. Unfortunately "because says so" is not sufficient, as we will not question 's skills (we respect our colleagues whether we agree with them on a given topic / market situation or not) - we will only comment on their reasoning of the particular situation. Don't get us wrong - you have the right to act anyway you want regarding your investments (obviously, it's your money) and we're perfectly fine with that. The point is that we want to take your opinions into account and analyze them, but we cannot proceed if we don't have details.

We will be watching the markets closely and report to you should anything change.

Thank you for using the Premium Service.

Sincerely,
Przemyslaw Radomski