There are few markets that can be more psychotic than the precious metals as they can turn on a dime and crush the unsuspecting. After making a double top in the $1920 area just a couple weeks ago Gold hit $1535 over night and came close to reaching the 200 day moving average which is found at $1520.

If you look at a longer term daily chart you can see the last time that gold actually hit the 200 day moving average was back in July 2010 prior to QE2.

If you remain in the camp that believes the only way out of our current economic problems is through dollar devaluation then the 200 day moving average is a place where you find good value. If the 200 day moving average doesn’t hold, it could be a torturous market for the next year. Today we will see a significant amount of pressure on the largest Gold ETF (GLD) as small investors try to escape the extreme volatility.

Silver has been much weaker than gold since making it’s parabolic top back in April back when many people were investing chunks of their 401k in the largest silver etf (SLV). Unlike gold silver has already blown out the 200 day moving average and is now in no-mans land. Silver has more of an industrial component than gold so that partially explains why silver has been performing much more poorly than gold in recent months.

With oil, copper and other basic commodities weak and the dollar rallying it’s time to use caution. Precious metals should be a conservative part of your asset allocation in this volatile environment.