"Fed split in June on QE timing; Bernanke sees easy policy for now"

That's the key news for today. The most important quote is: "Bernanke said the Fed would likely slow the pace of its bond purchases by year end, with an eye to bringing the stimulus program to a close by mid-2014."

This is later than markets had anticipated. The markets seem to have previously discounted the QE tapering or perhaps the end of the stimulus, so this information is likely to have the effect analogous to an announcement of another round of QE (there's more QE than the markets had anticipated). This means higher stock indices, lower USD, and higher gold.

Stocks are already rallying in Europe. The USD Index plunged invalidating the previous breakout above the May 2013 highs. At the same time the Euro Index invalidated the head-and-shoulders pattern (which is another proof why waiting for a confirmation of a breakdown/breakout is so important).

Is gold skyrocketing, as it should given the above? No, it's merely $25 higher and silver is only $0.60 up. A $20 rally may seem significant to some, but to us - given the 2 index-point decline in the USD Index - it's extremely small. If the gold market was ready for the next big rally, such a decline in the USD could have easily meant a $100 rally in gold. But no - we saw a small, $25 upswing.

The USD Index corrected about 61.8% (Fibonacci retracement level) of its June - July upswing. Gold corrected half of its late-June - July decline and even less than that if we take the early-June top ($1,425) as the beginning of the downswing. Strength in gold relative to the dollar is visible neither on a short-term basis nor on a very short-term basis.

Gold moved up to approximately $1,285, which may sound familiar to you. This is the broken major resistance level (previously support) - the 50% retracement based on the entire bull market. It moved a bit higher initially, but still, the move was smaller than in the USD Index.

We summarized the Gold section of the latest Premium Update by saying that "the immediate-term could see some strength, but with support lines relatively far away, the next big move will likely be to the downside" and this remains very much up-to-date. The medium-term support is currently at $1,325 and gold could even move to this level and still remain in a medium-term downtrend. It doesn't have to move that high before it reverses to the downside - the $1,285 resistance is even stronger.

In the Silver section we wrote that "the downtrend will remain in place here and will remain so unless silver can rally and hold a breakout above the $20.70 price level." Silver moved temporarily higher to $20.30 in pre-market trading today, but afterwards it moved back down to the $20 level. The downtrend in silver wasn't invalidated even though the dollar plunged. Comparing this month's pullback to the June decline, we get an even smaller correction than in gold. Silver moved temporarily to the 50% retracement, while gold moved temporarily above it.

The resistance level in the HUI Index is currently at 250. Please note that gold stocks didn't really follow gold higher in the past few days - a bearish sign.

Let's go back to the resistance levels for gold and silver. The levels: $1,325 and $20.70 were created based on intra-day highs. If we take closing prices into account we get lower values - very similar to the price levels that were reached earlier today. This means that if the downtrend is to continue - and we expect that it will - then the local top may already be in, and if not, it's quite close.

Therefore - in light of the above and the continuation of metals' underperformance relative to the USD Index - we suggest opening speculative short position in gold, silver and mining stocks with half of the capital that would normally be dedicated to such a trade. Our indicators are still mixed on this one, and we are not super-convinced (unlike it was the case in June) so we're not suggesting a super-sized short position.

We are not ruling out the case in which we're going to see a breakout today, and in this case the short position would have to be closed. Consequently, we suggest placing the following stop-loss orders:

• Stop loss for gold's speculative short position: $1,340
• Stop loss for silver's speculative short position: $20.90
• Stop loss for the HUI Index's speculative short position (theoretically, as you can't short the index by itself): 246
• Stop loss for GDX ETF's speculative short position: $26.55

To summarize:

Long-term capital: Half position in gold, silver, platinum and mining stocks. As far as long-term mining stock selection is concerned, we suggest using our tools before making purchases: the Golden StockPicker and the Silver StockPicker

Trading capital: Short positions (half) in gold, silver and mining stocks. We suggest placing buy orders for the speculative long positions in gold and silver for gold at $1,140 and silver at $17,40 (and closing the short position at that time - if these levels are reached). We don't have analogous price levels for mining stocks, but it seems that it will be a good idea to buy them (close the short position) when you buy gold based on the $1,140 target.

After the above-mentioned move higher (rally from $1,140 in gold) we expect metals and miners to decline once again and move to $1,090 (gold), $14,70, and 150 (HUI Index). It seems to us that these levels could be reached this month (July 2013).

If we don't see a sharp plunge to $1,140 in gold then we plan to hold the short positions until the final bottom near the $1,100 level. That is unless something makes us change our mind meanwhile - and you - our subscribers - would be the first to know in this case.

These levels could be seen along with USD Index at 86 - 86.4. At that time (if we see another downswing), we will suggest purchasing metals and miners at the following price levels (speculative trades):

• Gold: $1,105 (stop-loss: $970)
• Silver: $15.20 (stop-loss: $14.20)
• $HUI: 155 (stop-loss: 137)

These levels are slightly above the price targets to maximize the odds of entering the trade (if everyone thinks that gold will move to $1090 they will buy before it reaches this level and ultimately gold may not drop as low at all).

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 July, 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.

As a reminder, Market Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent we will send you an additional small alert before posting the main one.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA