Silver and mining stocks declined for yet another day, but this time gold ended the session with a (slight, but still) gain. How can we interpret the latter? Is it a sign of strength?

In short, not at all. In yesterday’s alert we emphasized that gold’s breakdown was one of the key developments that one should consider while analyzing the precious metals market. The tiny upswing that we saw in gold yesterday was a classic example of a post-breakout pause. Let’s take a closer look (chart courtesy of http://stockcharts.com).

In yesterday’s alert, we wrote exactly the following:

Gold closed yesterday’s session below both rising support lines, but the most important thing is that it closed it below the line based on the daily closing prices (it’s currently at about $1,275) and that the move below it was rather significant.

The breakdown is not yet confirmed, but it appears that it will be confirmed shortly, especially if the USD continues to move higher. The next support is just above $1,200, so that’s where gold is most likely headed. As discussed earlier today, the bigger the consolidation, the bigger the move is likely to follow and in this case, it means that gold should move visibly lower, not just several dollars lower. Again, it doesn’t seem that the decline is close to being over – at least not in terms of price.

Another daily close below both rising support lines is a step closer toward a confirmation of a breakdown and the fact that the volume was low adds to the credibility of the bearish case. The same goes for today’s pre-market action. At the moment of writing these words, gold is about $5 lower, so the odds are that the session will end below the rising support/resistance lines once again and that the breakdown will be fully confirmed.

The mentioned lines are clearly visible, so it’s very likely that this breakdown will be viewed as a key technical development for many traders and that it will result in lower prices relatively soon.