The metals have been declining today and this - compared with the strength of the previous rally provides more details about the current state of the market.
The volume that accompanied the recent several-day-long rally was quite weak and gold stocks did not follow gold higher. Consequently, it seems that we are in fact in the first part of the bigger corrective decline. Naturally, our assessment of the situation may change but this is what we currently see. Consequently, the current bet on higher gold prices should be considered as a counter-trend one, and thus riskier than we originally expected.
The risk/reward ratio still justifies the long speculative position in gold, however this e-mail is to prepare you for the message that we may send out in the following days/weeks about closing this position and perhaps selling also a part of your long-term investments.
The reason for not selling right now is the situation in the USD and Euro Indices. It appears to have great influence on the precious metals market at the moment and both indices are currently right at their respective resistance/support levels. This situation is particularly visible in euro which is right at the early November 2010 high and at the same time it’s at the declining support line (as featured in the latest Premium Update).
Since the above-mentioned resistance/support levels have not been broken, the trends remain down for USD and up for euro. If we get a bounce from these levels and currencies move along with their trends, then precious metals are likely to rally again. On the other hand, if USD rallies significantly from here and euro declines, then metals would likely decline as well. However, since the trend in the former did not change, a rally in the metals is still more likely than not.
Summing up, while this is not a sell alert (short-term rally in the metals is still more likely than not), we're sending this message to let you know that we don't think that this rally will take metals above previous highs. As always, we will keep you updated.
Thank you.
Sincerely,
Przemyslaw Radomski
