We just received the following questions and we believe that you would also like to read our reply:

"Prices are up, volume isn't there though - please comment before close today - hold or go long?"

"LOOKS LIKE THEY ARE STARTING THE RALLY EARLY... Should we sell????"

The first question includes part of the answer. The volume isn't strong - the session is not over so it's difficult to say what the volume really is, but the odds are that it won't be big. In case of gold and silver (GLD and SLV ETFs in this case which we use to analyze volume) today's price action looks like a classic breather after a sharp move. Both metals declined significantly yesterday and now we see a pause before these moves lower continue. The short-term picture for gold and silver remains bearish in our view.

The really interesting phenomenon is this week's strength of the mining stocks. They were basically flat yesterday despite big declines in the underlying metals and they are rallying today much more than gold and silver do. The move higher today is taking place on relatively low volume (at least so far) and therefore it still seems to be more of a counter-trend move - a pause - than a beginning of another major rally. Mining stocks (GDX) didn't move back above their rising support line today, so technically, the short-term case remains bearish.

Stocks are rallying strongly and yes, this is a bullish factor for mining stocks, but ultimately, if gold and silver move lower here, miners are likely to decline as well. 

Remember the buy signal for mining stocks from the SP Short-term Gold Stock Bottom Indicator? It seems that while it didn't marked a true bottom for miners, it did indicate lots of strength in miners especially when compared to gold and silver.

Summing up, today's strength in the mining stocks and metals (barely any in silver) is not confirmed by volume and it seems that the short-term correction is not over yet. Miners are quite likely to outperform metals once the bottom is formed, but it does not seem that was the case just yet.

Regarding yesterday’s message about the recent developments in the SP Indicators - it seems that we will have another signal coming from our Extreme indicators shortly as they don't tend to stay above or below their signal lines for a long time. This would extend the "bottom is in" time that we mentioned yesterday for a few more days. We will keep you informed.

For now, the speculative short positions in the precious metals sector seem justified.

As a reminder, these are our targets for the current decline:

• Gold - $1,680 - $1,700
• Silver - $30 - $31
• GDX ETF - $48
• HUI Index - 450 - 460.

Please note that we do not suggest getting out of your long-term precious metals investments at this time.

As always, we'll keep you updated should our views on the market change - even if it means sending another message in several minutes. Thank you.

Sincerely,
Przemyslaw Radomski, CFA