Much happened since we had posted the previous report, so even with the Premium Update being just two days away, I believe you might find the following commentary useful.
Gold and the rest of the precious metals sector has been moving up strongly and both silver and gold managed to move above their previous highs. While the long-term situation remains bullish, the question is - what's likely to happen in the next days/weeks? Will gold move straight up to $1,500 or even higher? Not necessarily right away.
Gold:
The very-long-term gold chart suggests a target of $1340 - $1350, and based on the popularity that metals gained recently it seems that this level will not be pierced during the first attempt.
The RSI Indicator is getting overbought, but with the strength confirmed by volume, and the fact that metals moved above their previous highs, it seems that this indicator could become slightly more overbought before the top is reached. Please take a look at the beginning of 2008 and late 2009 - when RSI moved above 70 (taking weekly closing prices into account) and stayed there for several days (gold did not decline), it moved higher by several tens of dollars.
Silver:
The white metal breached to new nominal highs, so we've examined how silver performed during the previous times that it broke into new highs.
September 2003 - sharp correction (bottom visibly lower than the previous high) followed by a very strong multi-dollar rally
December 2005 - correction (bottom slightly lower than the previous high) followed by a very strong multi-dollar rally
November 2007 - correction (bottom visibly lower than the previous high) followed by a very strong multi-dollar rally
September/October 2010 - "correction (bottom visibly lower than the previous high) followed by a very strong multi-dollar rally" seems probable.
Silver is about a week away from its next cyclical turning point, so the corrective pullback below the previous high appears close. In other words, it is likely that one will be able to get into the precious metals market soon at similar or lower price levels than we have today with the risk being much lower - after the corrective pullback markets will be ready to move much higher again.
Mining stocks:
HUI is very close to its long-term resistance level and the XAU Index just moved above its declining resistance level, which is a slight indication that both indices will move higher. Still, we see a pullback as probable either before HUI moves above its 2008 high, or right after that - the latter being slightly more probable.
Main stock indices - just a quick note here - are consolidating and it looks like they are ready to move to their April highs (take a look at the SPY ETF chart for details)
USD Index - it's a tough call to say if the USD Index will consolidate around 80 level soon, or will we see additional move lower to 77 or so and then a re-test of the 80 level. At this point the latter appears more probable.
Summing up, the precious metals sector has been recently positively correlated with the general stock market and negatively with the USD Index, which means that current moves in all markets could continue for a week or so, and end at the same time. While the direction of the following moves in stocks and USD Index is rather unclear, it seems that once gold, silver and mining stocks consolidate they will begin a very strong move higher.
In no way should the above comments regarding temporary consolidation make you consider selling your long-term precious metals holdings - we remain bullish on the metals here and we believe one should hold them regardless of the possibility of the short-term correction.
We will keep you updated and let you know if anything changes.
Thank you.
Sincerely,
Przemyslaw Radomski
