Yesterday’s session started in the red for gold, silver, and mining stocks, but only the metals ended the day lower. The mining stocks reversed and both: GDX ETF and HUI Index ended the session higher, thus showing significant strength. The inverse head-and-shoulders pattern is not complete, but given this kind of strength, it could be complete shortly. But is it likely?

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The previous week is over and even though we haven’t seen any significant volatility in its final part, it doesn’t mean that we haven’t seen any meaningful signals. We did and one of them has important implications for the short term and a few others have much more important implications of the medium-term nature.

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When we wrote yesterday’s Gold & Silver Trading Alert, we saw gold moving a few dollars above the levels at which it had been trading 24 hours before. But the rally was reversed and gold ended the session $1.30 lower. That’s yet another intraday high in a row that’s followed by an afternoon decline. What does it tell us?

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In yesterday’s analysis we wrote a lot about the possible inverse head-and-shoulders being formed in the mining stocks. We emphasized that the breakout above the neck level of the formation in the GDX ETF was too small to be considered meaningful without a confirmation, especially that other proxies for the mining stock sector didn’t provide analogous signals. We didn’t have to wait for long for the market to agree with us – GDX invalidated its breakout shortly and clearly. What’s next?

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Gold rallied, silver rallied, and mining stocks rallied. That’s how one can summarize yesterday’s session. The volume was huge, so it appears that a major upswing has just begun. But is this really the case? As always, just because things look encouraging and the emotions are high, it doesn’t mean that anything changed. One needs to step back from the day-to-day price and volume changes and look at the factors that are in place right now without any biases. No hopes, no “feelings toward the market”, and no worries about missing the boat. Just facts and logic.

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