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Metals: anatomy of a breakdown

Commentaries & Views

So much for the trade to $1865 gold and/or $22.50 silver right now. Stackers, though, are seeing this smash-down of price as a buying opportunity, and rightfully so, in my opinion. Premiums on physical bullion pieces are at their lowest in 3 years.

To be fair – As I wrote when the trade setup occurred last week, "I would have a target at $22 and a stretch at $22.50 spot, perhaps with a stop at today's low?" That stop would have been $20.65: Respecting stops, which is essentially respecting yourself, in my opinion, is a cardinal rule in the traders' handbook. Also, regarding gold, I revised a target from $1855 to $1865 with respect to confirming that the upward trend has concretely resumed.

Now: below is how I saw the breakdown occurring in real-time as it happened yesterday, starting with the smackdown at 2 am EST Monday night from $1850 on news of the Perth Mint having sold "tainted" gold to China.

The second (brighter) yellow flag was the breakdown of the formation shown below on the 15 min chart.

The flashing red flag was the brutal breakdown of the all-important $1832 level I have been writing about for months – Once bulls failed to hold that line, the bear raid accelerated quickly, as shown on the 2-hour chart below.

And finally, a look at silver with an updated chart of that shown twice last week. Note the false breakout and reversal above the top trendline. As traders should know and as I have noted, most recently regarding a similar fractal in stocks: "the opposite move to a false breakout/down could be dramatic." Yesterday it played out quite dramatically, indeed.

I will be watching $20 silver and $1800 gold for signs of further selling ahead, but for now, price would most likely pair some of yesterday's losses first. Perhaps traders get a chance at $20.50/65 silver and $1832ish gold again.

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