We promised to let you know about our thoughts on the situation in the precious metals market after each trading day until the release of the new website, so here we are.

There's not much to add regarding gold and silver, because what we wrote in the latest Premium Update is very much up-to-date. However, interesting developments were seen in case of the mining stocks, GDX:SPY ratio, and the USD Index.

The HUI Index moved higher on Friday and it's now well above the 500 level. The move above this psychologically-important move is not confirmed yet, though. What is not visible at the first sight when one takes a look at the HUI chart, is that the May-September rally is approximately 1.618 bigger than the first part of the rally - the May-June one upswing. The precise target based on this way of applying the Phi number (1.618) is 521, just a bit above where HUI closed on Friday.

The volume for the GDX:SPY ratio (more precisely ratio of volumes of the two ETFs) spiked and this often meant local tops in the past, especially if it was combined with an overbought reading in the RSI indicator based on the ratio. At this time, RSI is extremely overbought, so the bearish implications apply.

The USD Index moved to its early May low, which could very well stop the decline for at least a while - just as metals are very overbought on a short-term basis, the USD is very oversold from this perspective. There's one more support level in the USD Index that is quite close - just above the 78 level is the 2012 low, which formed in late February. Consequently, it could be the case that just as gold moves to its 2012 high before correcting, the USD Index would move to its 2012 low before its own correction (to the upside). 

Summing up, it seems that the precious metals sector might move only a bit higher before correcting, which is in tune with what we wrote yesterday. We continue to believe that being in the precious metals sector with one's long-term investment capital and waiting on the sidelines with one's speculative capital is a good idea. If we get additional bearish signals, we will probably suggest betting on the temporary downswing, but that is not the case just yet.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA