Gold and mining stocks moved higher yesterday and we received a few questions regarding our short-term bearish outlook for the precious metals market. Let's take a look what happened:

• Gold: moved back to where it was 2 days ago, not higher. The volume was average, slightly lower than during the previous day's decline - unclear short-term implications
• Silver: basically flat on average volume
• Mining stocks in general (GDX ETF), gold stocks in particular: strong rally on significant volume. Looks bullish by itself, but the same was the case on April 24 (size of the rally, volume, daily closing price) and the local top was formed on the next day. That's not all what makes us suspicious here. We just noticed that there's been a two-bigger-rallies-and-a-decline rule in place in case of the GDX ETF. Before each decline (or at least most of them) miners had a consolidation during which there were two significant daily rallies. One at the beginning of the consolidation and another one at or very close to its end. Take the March consolidation as an example. Miners rallied on March 6 and March 21 (and the latter was the final top for that consolidation). Another example - early April: Apr 5 and Apr 9. Also, January: Jan 10 and Jan 22.
• Silver stocks (SIL ETF) moved higher on tiny volume - a bearish sign.

Our soon-to-be-released self-similarity-based tool recently moved back to the bearish outlook for gold and this outlook was upheld even after yesterday's rally.

Taking the very short-term USD-gold link into account and focusing on the past 2 days we have a situation where gold first declined when the dollar did nothing and then it rallied when the dollar declined. This is a short-term bearish indication.

Overall, not much changed in the past two days. Gold initially declined and then moved back up. Silver didn't do much, and the miners' rally is encouraging at the first sight, but that's no longer the case when you take a look at previous consolidations and see the divergence between gold stocks and silver stocks.

Summing up, we continue to believe that betting on lower values of silver and mining stocks is justified from the risk/reward point of view. It's probably a good idea in case of gold as well, but we are not that convinced, so we're staying out. In other words, we continue to suggest having speculative short positions in silver and mining stocks.

The stop-loss levels are:

• Silver: $25.30
• GDX ETF: $32.2
• HUI Index: 305

Here's the up-to-date version of our trading/investment plan:

1. When gold moves to $1,305 open a long position in gold (with $1,268 as a stop-loss level).
2. When silver moves to $18.20 close the short position and open a long position in silver (with $17.65 as a stop-loss level).
3. When the XAU Index moves to 84, close the short position and open a long position in the mining stocks (with 80 in the XAU Index as a stop-loss level).

The above ($1,305, $18.20 and 84) are also the levels at which we suggest getting back on the long side of the precious metals market with half of your long-term investments. We will send a separate confirmation to get fully back in.

As always, we'll keep you updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) at least until the end of May, 2013 and we will send additional Market Alerts whenever appropriate. We have prolonged the time in which you - our subscribers - will receive Market Alerts daily for another full month.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA