The Next Sound You Hear...

Not a great way to start the week for precious metals bulls. Fundamentally, there was a rather unusual confluence of events that separately could not have caused as much havoc as they did all together.

Let's start with conflicts around the globe. As we predicted a few weeks ago, the Iraq situation has calmed down considerably, and while this is not to say it can't flare up, it seems as if there will be more atomization of factions into sub-factions into sub-sub-factions.

The Israeli-Hamas rocket battle, while unfortunate, has not and will not draw in other countries weary from war or too weak economically to fight Israel. (Nor will those dependent on economic ties with Israel such as Egypt and Jordan.)

While Comrade Putin is palavering about Ukraine, he has firmly grasped that he cannot really do much without inviting serious economic blows from the West.

On another side of the international front, Portugal's Espirito Santo Bank saw bargain hunter's come to its rescue (unintentionally, of course), when investors began buying up Portugal sovereign debt at a reduced price.

That collective sigh of relief found expression in renewed interest in international equities buying and a decline in interest in gold and silver as safe haven plays. It should be noted that the entire precious metals complex is down significantly on the day.

A few large sales of gold allowed pre-set sell orders to kick in and bulls suffered the consequences.

One can assign the initial sell off to profit taking, with the pre-set sell orders creating a lot of collateral damage.

But, as you would expect from reading the first part of this fundamentals assessment, the VIX - a measure of financial volatility - has been declining since Thursday shrugging off the Middle East turmoil.

How and when gold recovers will tell us a lot about the rest of the month's trading.

Tomorrow and Wednesday, Fed Chairwoman Janet Yellen will testify before the Senate Banking Committee. We believe she will reiterate (or re-re-reiterate her vision for interest rates). However, today's decline in gold and silver can in some minor part also be attributed to jitters over the possibility she might back off her dovishness.

As always, wishing you good trading,