In yesterday's Mid-week Update we wrote the following:

"The markets in the US have been closed today, but based on Kitco's internal gold/silver prices we might infer that silver has just moved to new highs and gold moved much higher as well. Consequently, unless the situation is just as extreme tomorrow but in the opposite direction (not likely), we're going to see much higher prices of GLD and SLV ETFs along with rising values of mining stocks."

In fact, the unlikely has happened as markets have turned around completely overnight. The particularly interesting fact is that silver moved over $1 lower in the past few hours, so the question is if anything changed. Not really. The main point of yesterday's message was that "exiting speculative positions at this point still doesn't appear justified from the risk/reward perspective" and to provide you with two possible scenarios that are likely to take place in the near future.

Neither the target levels mentioned yesterday ($38 for silver, 2010 highs for gold and mining stocks), nor the possible scenarios were invalidated by the overnight action. The breakout above the long-term rising trend channel (visible on yesterday's chart) has been invalidated, but since the market was not open, we don't view it as a bearish sign, but as a neutral one. The bullish implications yesterday were based on the high probability that the move higher will indeed take place, however it is no longer very likely. Please note that it does NOT mean that a move lower is likely - it's more like if yesterday's move did not take place at all.

However, the facts are that silver is above its previous highs, and gold is still trading close to $1,400. It is not as likely as it was just several hours ago, but based on the size of the previous rallies, a move to $38 in silver / to 2010 highs in gold and mining stocks is still not out of the question in the following weeks.

Summing up, even though silver's Monday gains mostly evaporated overnight, it seems that exiting one's speculative long positions is still not justified from the risk/reward perspective. Naturally, we don't suggest making any changes in the long-term part of your holdings either.

As always, we will keep you updated, should anything change - as soon as the situation requires it.

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Sincerely,
Przemyslaw Radomski