Precious metals moved higher once again yesterday, so the question arises if anything changed. In our view, at this point the situation is still bearish, with only a chance of becoming bullish once again (and most likely for the short term only). We would need to see hard technical evidence that this decline is really over despite silver reaching only a fraction of its previous declines in the historically weak period of the year. Fundamental situation is positive and it has been for the past several years and yet even massive corrections happened.

Did gold have a good reason to rally? Yes, it did - Moody's downgraded Portugal's bonds to Ba2 rating which falls into the "junk" category. That's a sign of instability in Europe and we've seen a rally in gold. So, was there an unexpected reason for this rally, or should it be attributed to a shift in the general tendency? We think the former is the case.

From a technical point of view, we're seeing only a slight move above the 50-day moving average (like in January 2011) that is at the 61.8% Fibonacci retracement level based on the most recent decline. Now, if the move above the 50-day moving average gets confirmed and gold holds up strongly situation may change. We will report to you accordingly.

Naturally, points mentioned above will be discussed in greater detail in tomorrow's Premium Update.

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Sincerely,
Przemyslaw Radomski