The markets are waiting for a decision on QE3, but gold and silver appear to have already decided what's going to take place next. Whether or not QE3 is seen soon, gold and silver decided to focus on the big picture and resume their long-term trend. They confirmed the breakout above the declining medium-term resistance line last week.

Consequently, if no QE3 is announced, then markets could move lower, but most likely not below previously broken levels. If QE3 is announced, then gold and silver could still decline temporarily on a "buy the rumor, sell the fact" basis. All in all, today's announcement might not have that big impact on precious metals, as many believe. The most important thing - the above-mentioned breakout - has already happened. 

However, please keep in mind that no market can move straight up and that corrections are inevitable. The RSI based on gold is extremely overbought and the same can be said about silver and the GDX ETF.

The final support for gold is at $1,670 and $31.5 for silver - at the previously broken resistance lines that have now turned into a support. Consequently, if gold moves below $1,680 or silver moves below 31.80, we suggest opening speculative long positions in both markets. We don't have analogous price level for mining stocks, but we will provide it in tomorrow's Premium Update. 

Should you short the metals market now? We don't think so, because except for the fact that precious metals might have gone too far too fast and are very overbought on a short-term basis and the tendency for markets to verify their brekaouts there are no significant sell signals. 

Summing up, we believe the long-term capital should be invested in the precious metals market at this time, and the speculative capital should be out of the market, because the risk/reward combination is not yet favorable enough for taking any position (consequently, the speculative long position that was opened based on scenario #1 outlined in the last Premium Update should now be closed in our view).

We will examine the situation in much greater detail in tomorrow's Premium Update.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA