9:00am (EST)

It was a terrible day on Wall Street but more importantly, it was a sad day for Boston and the rest of America.

We dislike writing about tragedy and yesterday’s explosions at the Boston Marathon reminded us once again how fragile life is and how much hate is still in the world there.  Our hearts, thoughts, and prayers go out to everyone affected by this senseless act of violence.

We had a feeling Monday would be a weird day as we were doing our chart work over the weekend.  Futures were flat as we started our Sunday night homework but took a hit when China released its GDP numbers.  The overseas markets were down on the news and we didn’t like the friendly words the U.S. had for Japan who is just trying to be like Bernanke.  Ah, those currency wars we warned you about a few months ago…

Gold was down 7% last week and the chart work we did was showing a nasty drop to the 200-day MA.  Silver was also punished and dropped below $26 with the chart pointing towards a test to $22.50, possibly $20.

Gold had traded in a tight $50 range ($1,550-$1,600) from mid-February through last week just like the market and we often say the longer the range the bigger the breakout or breakdown will be.  The market reached new highs last week when it broke out of its range while Gold went the opposite way.  The selloff continued yesterday.

The yellow metal fell another $129 an ounce, or 8.7%, and closed at $1,351.50.  The low was $1,335.  From our Weekly Wrap:

“Gold got mugged last week, falling over $100 an ounce, or nearly 7%.  We have been warning of the breakdown to $1,525 and we said last week it could do a perfect back test to $1,600 before the bottom fell out.  Bingo.  The close at $1,480 opens the door for a test to the 200-day MA ($1,433) and possibly a drop to $1,400.” (END)

The extended downside target for Gold could well be $1,250-$1,150, or worse(?).

Silver broke down like a rented mule, dropping 12.5%, or $3.23, to end at $22.66 on Monday.

From the Weekly Wrap:

“The spot is high because of supply and demand despite Silver sitting at 2-year lows.  Demand is roughly 60% higher than output and silver is used in production more than gold.  Buying silver under $26 with a $4 spot was unimaginable a few months ago but we believe somewhere down the road silver will be north of $50.  However, a continued selloff could lead to $22.50, or even $20.  At $20, we might back up the truck and bet the farm.” (END)

Little did we know these levels would come into play less than 24 hours later but we did warm up the Chevy.  The debacle in the metals should serve as a reminder that selloffs and corrections can come in a matter of hours and not days. (read more…)

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