Once again gold and silver moved higher yesterday (which was not really the case with mining stocks), and once again we have received several questions about these moves. We finally decided to wait with sending out this message until today, as we wanted to re-examine the charts and be sure that we are not affected by emotions while preparing the analysis.

Our view is that we still see too many bearish signals at this point to consider moving on to the short-term bullish camp. In other words, we still view a short-term decline as likely. We would like to emphasize that we are not sticking to this position because of the previous messages sent to you. We stick to it because of what the market tells us. Would we initiate a small short position now if we didn't have one already? Yes, we would, which means that having it opened makes sense.

In the last Update we mentioned that gold is negatively correlated with the general stock market now and it seems that this medium-term positive factor will have bearish implications in the near term. This tendency is still in place. More than that - it has been visible on a day-to-day basis in the past 7 days or so. Important point here is that the price/volume action on the general stock market suggests is very bullish - daily rallies accompanied by huge volume and daily declines on a really tiny volume, suggesting a very near upswing. This is very likely to translate into a correction in gold and other parts of the precious metals sector. We also had a "shooting star" candlestick in the GDX ETF, and "top is near" signal in the Gold Miners Bullish Percent Index.

The September is beginning, which is known to be the strongest month for gold, however there are two facts that we would like you to keep in mind:

1. On average, the rally starts in the middle of the month
2. During the whole bull market (even taking 2000 as a starting year), gold NEVER moved straight up in September without having corrected in August. The only August without a correction was in 2003 and that was the year when we've had one in September.

The final point is that even if gold doesn't go all the way down to the July low, and it stops at one of the higher resistance levels - these levels are still below the price at which the current position was initiated.

We have also received questions about stop-loss orders. Generally, these are to be determined by both: objective (market-related) and subjective (investor-related) factors. Our analysis can obviously only relate to the market-related factors. The problem is that the subjective ones are too important to be ignored, which means that we cannot simply "provide" a stop-loss order that is applicable to most investors. Additionally, stop-loss orders are price-based and there are many other factors that need to be observed, not just the price - volume, ratios, indicators, etc.

Summing up, the probability of a correction on the precious metals market in the following days remains high.

We will support the above points with appropriate charts in Friday's Premium Update. If we believe that the above is no longer up-to-date, we will let you know.

Thank you.

Sincerely,
Przemyslaw Radomski