Gold is moving slightly higher today, but a decline in euro and the general stock market might have made you worried about the future performance of precious metals. After all, gold has been positively correlated with both: euro and stocks.

At this point euro is slightly (!) below its short-term support lines, but the long-term support line has not been broken. By that we mean the declining support line visible on the long-term euro chart in the latest Premium Update. Basing this line on weekly closing prices (the most important implications are based on these prices) - 159.35 / July 7th and 149.62 / Nov 23rd we get a support line right at the 140 level. So, we have an unverified breakdown below a short-term support and no breakdown below long-term support. In our view, the situation remains bullish.

Moving on to the general stock market, please recall the flag formation that we mentioned in the latest Premium Update. The recent move lower took stocks to the lower border of the pattern, but the formation is still in play. As it is the case with euro, the long-term support line is the most important thing to watch when determining whether a trend has been broken or not. Applying the same methodology as above (weekly closing prices for long-term chart) provides us with a support for the S&P 500 Index at 1320. This is where this index is at the moment of writing this message, so the bullish trend has not been broken.

The interesting phenomenon is that gold didn't move lower recently. Conversely, it rallied on Friday (on significant volume) and it moved slightly higher also today. Based on the short-term moves in the Euro Index and stocks we would expect gold to move at least a little lower, and yet it has refused to decline. This rally was not confirmed by a move in silver and mining stocks but based on our experience, it seems that it is gold that is suggesting a move higher for the rest of the precious metals sector, not the other way around.

If euro rallies and dollar falls it will be crucial to check strength of gold's reaction toward these moves. This would let us know how far gold could go if gold rallies strongly, then we will adjust our $1,530 target - perhaps to the early-May highs.

Summing up, even though stocks and currencies moved recently, we didn't change our mind regarding the prevailing trends on these markets. Consequently, we continue to believe that the next short-term move for the precious metals will be higher. Should that cease to be the case in our view, we will notify you immediately.

Thank you.

Sincerely,
Przemyslaw Radomski