Market AlertFebruary 7, 2013, 11:10 AM
Gold and silver moved lower today when markets opened in the US thus breaking below the lower border of the triangle patterns that we mentioned in yesterday's Market Alert.
We get the feeling that this is a bear trap (fake move lower to shake people out of the market right before the rally), something like what we saw in the first week of this year. Let's see if any facts support this feeling.
Yesterday, we emphasized the existence of a triangle pattern in the silver market because it was much clearer there than in the gold market. We also wrote that "of course there is a long-term support line just a little below today's prices, so the situation would be bullish even without the triangle pattern". This important support line is currently at the $31 level, so there was no meaningful breakdown here, only a short-term one.
Do we suggest getting out of the market with any of the long positions right now? No, we suggest keeping them. Even if silver moves lower to the $31 level, it will not drop much - it's trading at $31.42 at the moment of writing these words. The downside is small in our view and if we are correct about the "bear trap" here, then the following rally will be hard to catch if you miss it at the beginning, because of the volatility. We realize that it might be hard to believe that volatile days are about to be seen because there have been many days recently when the price didn't do almost anything as far as daily closes are concerned, however, it is exactly how consolidations are supposed to work. Plunges discourage investors but so do prolonged consolidations. We suggest staying patient and long precious metals.
The USD Index moved considerably higher today - above the declining resistance line that we featured in previous Premium Updates and mentioned also in the recent alerts, but we don't think that this breakout will hold. Sure, the jobless claims in the US fell, but that is not something that is directly related to the strength of the USD vs. other currencies. Markets focused on it and there is indeed a link but it's not that huge - interest rates and money supply are much more important - we believe that forex traders simply focused on the jobless claims today. Consequently, we think that today's "breakout" in the USD Index will be invalidated shortly, just like it was the case in early Jan 2013 and between Jan 21 and Jan 25.
Platinum and mining stocks moved so little that it's not really worth calling it a decline.
All in all, the situation remains bullish for the precious metals sector. Just as we indicated previously, a full speculative long position is suggested for gold and silver, and also for mining stocks.
Naturally, we suggest remaining in the precious metals market with your long-term investments. We sustain our belief that platinum will continue to outperform gold in the following months and it's not too late to take advantage of that.
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 February, 2013 and we will send additional Market Alerts whenever appropriate.
Przemyslaw Radomski, CFA