On Sunday afternoon, I published a viral piece called “ Did A Major Gold And Silver Breakdown Just Begin? ” in which I explained that gold and silver may be on the verge of an imminent sell-off if key technical levels were broken. I showed that wedge patternshad formed in gold and silver for the past two years, and these patterns may indicate the resumption of the 2011 to 2013 bear market when broken. Amazingly, when gold and silver opened for trading on Sunday night, they experienced stunning flash crashes that caused them to slice clearly below the $1,130 and $15 technical levels I showed in the piece.

A  $2.7 billionnotional sell-order in gold futures caused the yellow metal to plunge 4.2 percent or $50  to nearly $1,086 per ounce in just a few minutes, dragging down other precious metals with it. The sell-off originated in the New York and Shanghai markets and was exacerbated by the lower-liquidity conditions due to Japan’s market holiday. 

The weekly gold chart below shows the wedge pattern that formed in the past two years. The key $1,130 level formed the bottom of the wedge, and is now a resistance level since gold fell beneath it on Sunday. The technical breakdown is valid as long as gold is under this level.

Source:  Barchart.com

The monthly gold chart shows the next obvious support levels or price targets that gold may try to hit if the technical breakdown remains valid. $1,000 is the most immediate support level and is significant because it is a major round number and was also an important resistance level in 2008 and 2009. If gold breaks under $1,000, the next level to watch is $700, which was a strong resistance in 2006 and 2007, and a support in late-2008.

Source:  Barchart.com

The weekly silver chart shows that two wedge patterns formed since 2013, with the most recent one breaking down when silver fell under the $15 support. Silver’s breakdown is valid as long as it is under this $15 level.

Source:  Barchart.com

The monthly silver chart shows the next obvious support levels or price targets that it may try to reach if the recent technical breakdown remains valid. $10 is the target to watch because it is a major round number and it also marked the metal’s lows in 2006 and in late-2008. If the $10 support fails, then $5 is the next major, long-term support level to watch. $7.50, which was a resistance level in 2004 and 2005, is also worth watching. 

Source:  Barchart.com

The U.S. dollar has a very strong inverse relationship with precious metals, so it should be watched closely for insight into their next move. The U.S. Dollar Index has been in a strong bull market for the past year, but has been consolidating between the 93 support and 100 resistance level  (the March and April highs) since January. The dollar has been strengthening in the past month and appears to be heading to re-test the 100 level. A convincing break above 100 would likely signal further dollar appreciation and more fuel for the precious metals bear market. 

Source:  Barchart.com

I’m not at all surprised by the latest precious metals rout as I’ve been warning about it for quite some time. Precious metals perform well in loose monetary environments like the U.S. had after the Global Financial Crisis, but don’t fare well in tighter monetary environments. The Fed’s QE3 taper plan caused the last powerful precious metals sell-off two years ago, and the ending of ZIRP or zero interest rate policy later this year threatens to cause the next sell-off.

Despite my bearish tactical view on precious metals, I’m actually a huge believer in them in the longer-run. I consider the latest sell-off to be a wonderful “sale” that I’d like to take advantage of once I’m convinced that the worst is over. I believe that the global economic recovery is a sham that is driven by more debt and inflating bubbles – I call it a “ Bubblecovery .” This Bubblecoveryis creating temporary optimism and demand for risks assets like stocks, while hurting demand for safe-havens like gold. Unfortunately, these post-2009 bubbles are going to pop very hard, and when they do, central banks the world over are going to be printing money to oblivion.

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(Disclaimer: All information is provided for  educational  purposes only and should not be relied on for making any investment decisions. These chart analysis blog posts are simply market “play by plays” and color commentaries, not hard predictions, as the author is an agnostic on short-term market movements.)