And so it happened. After a breakdown that might have appeared accidental as it was triggered mostly by one company’s decline, we saw a weekly close below the key 61.8% Fibonacci retracement level in the HUI Index. There was no analogous breakdown to new lows in gold and silver, but what happened in these markets on a relative basis was even more significant.

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In yesterday’s Alert, we discussed the invalidation of the breakdown below the key 61.8% Fibonacci retracement in the HUI Index and we summarized that the follow-up rally was not likely to be significant and it may even be over. The HUI fell like a rock yesterday, breaking decisively below the mentioned support. It seems like a no-brainer shorting signal. But, the big slide was caused by mostly one company – New Gold – due to exceptionally bad Q2 earnings report and news regarding their Rainy River project. Can one company and one report really change the technical outlook for the entire mining stock sector?

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The USD Index declined yesterday, and it even moved to new weekly lows in terms of both intraday and closing price terms. Gold, silver and mining stocks responded with a rally. In particular, the latter ended the session higher despite the intraday pullback and the HUI Index moved back above its 61.8% Fibonacci retracement level, invalidating the previous breakdown. These signs, along with what we see on the gold charts in terms of the euro and the yen make it quite clear what’s likely to happen next.

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At first sight, yesterday’s session was quite boring – gold ended the session practically unchanged while silver and mining stocks were only a little higher. The USD Index was practically unchanged. But just because nothing happened in the market in terms of the daily closing prices, it doesn’t mean that we don’t have anything interesting to discuss. We do. There is a boomerang topic that just came back once again – the Commitment of Traders report for gold seems to be favoring higher gold prices as the current readings were seen at previous local bottoms. Are we going to see a CoT-driven rally shortly?

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The HUI Index just broke below the previous 2018 low and it moved below the 61.8% Fibonacci retracement level based on the entire 2016 rally. There had previously been four attempts to break below this level and they all failed and were followed by rallies. The late-2016 invalidation even triggered a move to over 220. Should one prepare for a rally from here?

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