Gold didn't do much on Friday - the GLD ETF closed exactly at the previous close and at its 50-day moving average, without breaking it. The $10 move higher that we have today (gold's at $1,326 at the moment of writing these words) is not a significant move and it doesn't change much either - at least not for gold.

The mining-stocks-to-gold ratio moved higher on Friday, but it closed visibly below its July high. Miners themselves rallied - yes - but we had seen such action several times before and it only resulted in disappointments for those betting on higher prices - declines followed. Can we trust this rally yet? We don't think so.

Why not? The most important reason is what's going on with the USD Index. The Dollar Index is at its medium-term support line and after a long-term breakout. It looks like a sizeable rally is in the cards for this market and metals and miners have yet to show strength relative to the dollar, strength that holds for more than just a few days and is not followed by even greater underperformance.

Still, the speculative short position in silver was closed based on the stop-loss level being reached in overnight trading - silver moved temporarily above the $21 level. The loss is rather insignificant, especially compared to gains made on the previous several trades - plus if we re-enter the trade relatively soon (which seems quite likely), we might still get ahead based on the coming price decline, so closing the silver position now doesn't change much.

Mining stocks are note the only gold-related asset that rallied on significant volume recently. Alcoa - the aluminum producer - did the same. We mentioned the gold-Alcoa link months ago and we see some similarity in trading patterns now as well (after all, they are both in the commodity sector). Local lows and local highs took place simultaneously in AA and in gold starting in April. AA shares rallied strongly on huge volume on Friday and the same was the case in early April - right before a decline in AA's share price, and before gold's plunge. Consequently, we have a bearish indication here.

Palladium and the Euro Index closed the week at their resistance levels without breaking them. In case of the Euro Index, we saw a close above the declining resistance line based on January and June highs, but there was no invalidation of the 61.8% Fibonacci retracement level, June highs or the 50-week moving average, which stopped the European currency on an intra-day basis. Without a breakout in the Euro Index and a breakdown below an important support line in case of the USD Index, it seems that we will see the USD Index rally and this is a bearish indicator for the precious metals sector.

We haven't commented on our SP Indicators for some time now - previously we wrote that the current time period (a major correction within the bull market) was not what the indicators had been based on (and at the same time we emphasized that they would likely return to their outstanding performance in detecting local bottoms once this huge correction was over). Last week we saw multiple buy signals from the SP Indicators which normally would be a very bullish combination. Decreasing the short position seems to be a good move from this perspective and we have just done so anyway because we closed the speculative short position in silver.

All in all, the outlook remains bearish for the precious metals sector.

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 in gold, and mining stocks.

We are not ruling out the case in which we're going to see a breakout today (which is not likely, even though another small move higher could be seen), 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: $1,356
• Stop loss for the HUI Index's speculative short position (theoretically, as you can't short the index by itself): 273
• Stop loss for GDX ETF's speculative short position: $29.40

We suggest placing buy orders for the speculative long positions in gold at $1,105 and for silver at $15.20 (and closing the short position at that time - if these levels are reached). The analogous level for the HUI Index is 155. If gold moves to $1,105 but other market don't move to their targets - we suggest closing short positions in gold and mining stocks and going long these sectors anyway (along with silver). If the HUI reach the target but gold doesn't, we suggest closing all above-mentioned short positions, but going long only the market that has reached its target. In this case you will likely hear from us shortly, but you know what our take is even before that happens.

Entry levels and stop losses for the above rather-soon-to-be-opened long positions:

• 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 August, 2013 and we will send additional Market Alerts whenever appropriate.

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.

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As a reminder, we have just launched a new service: the Market Overview monthly reports that focus on the fundamental and economic aspects of precious metals investing. We encourage you to check them out. It's less than $10 and it gets you 2 reports - the one that we just released and the upcoming one. You can sign up here.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA