Not much happened in the past 2 days in case of metals and miners themselves, but we saw something important happen in the currency markets yesterday.

2 days ago we wrote that the breakout in the USD Index and a good possibility that the major top in the Euro Index had just formed might create a specific opportunity, if these moves were not invalidated quickly. We wrote that we would wait 2 days before taking any action. 2 days have passed and basically nothing changed. The breakout in the USD Index is confirmed. The USD Index looks ready to rally once again and it seems that the rally will not be a small one.

The implications for the precious metals sector are bearish, especially since gold, silver, and mining stocks remain in a medium-term downtrend. The outlook for the precious metals market has just changed from bearish to more bearish.

Is it bearish enough to increase the size the size of the speculative short position in the sector or to sell/hedge the long-term investments?

In short, we think it is enough to justify taking an extra speculative short position (meaning a normal one, as we had previously opened just a small one), but it's not enough to suggest selling/hedging long-term investments.

The reason for the latter lies in one of the most important factors that convinced us that the medium-term trend is down: the gold-stocks-to-gold ratio. As long as this ratio stays above its previous 2013 lows, we will most likely not consider the outlook to be bearish enough to justify selling/hedging the long-term investments. Most likely - because we could indeed see a very bearish combination of other factors that would make us suggest selling/hedging the long-term investments, but that is not the case right now.

Consequently, we are increasing the size of the (previously small) speculative short position in gold, silver, and mining stocks, but we are leaving the long-term investments intact.

To summarize:

Trading – PR: Short position in gold, silver and mining stocks.

Long-term investments: A 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

Stop-loss orders for the above-mentioned speculative short positions:

• Gold: $1,392
• Silver: $23.90
• HUI Index: 268
• GDX ETF: $28.80

As always, we'll keep you - our subscribers - 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) 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.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA