In the previous alert, we've mentioned that it might be a good idea to use a small amount of capital to bet on lower prices of gold/silver in the short-term with put options (we advised against other methods). Since the metals moved higher since that time, the question anything changed - as far as this option trade is concerned.

We don't think so. The correlation between USD and metals is still strongly negative, and the one between main stock indices and metals is strongly positive. As mentioned in the previous Premium Update, these markets are trading closely with the precious metals and their turning points are very likely to correspond to the turning points in gold, silver, and mining stocks.

So, did dollar break below its strong support? No. Did the main stock indices break out decisively above their declining long-term resistance line? S&P 500 did move slightly above it, but the DIA ETF just reached its 2010 highs and stopped - not confirming the breakout. Consequently, stocks are still likely to move lower soon, and USD is still likely to rally soon.

Gold moved higher, but not above the level marked with the black rising line on the short-term GLD chart in the latest update - there was no breakout here in our view, even though the http://finance.yahoo.com website says otherwise. The move was not accompanied by huge volume either, which would confirm the "breakout".

Silver is two days after its "close to the top" territory and slightly above the level created as target based on previous post-breakout-rallies. The deviations are not big enough for us to consider them as invalidating points made earlier.

Mining stocks - the HUI Index moved only slightly above previous highs and so did GDX ETF (there was no confirmation). The XAU Index did not move to new highs (taking 2008 into account).

Summing up, the recent rally in the metals is not sufficient to invalidate the bearish signals coming from the analysis of the USD Index and the main stock indices.

We will keep you updated and let you know if anything changes.

Thank you.

Sincerely, Przemyslaw Radomski