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In an unusual conflux of events hitting Wall Street and the trading pits, precious metals are finding heavy selling pressure so far this week. Just when much of the market was anticipating a runaway continuation of the bull market, Bear Stearns crashed and burned.  With a Federal Reserve bailout propping up the badly beaten investment bank through a proxy loan deal with JP Morgan bank, skittish investors fled financial stocks and dumped the dollar in fear of a systemic collapse of the American banking system.

Naturally, gold responded positively to this development. With the Fed set to cut rates to multi-year lows, even while inflation numbers ramp up and economic activity winds down, a perfect storm for driving gold above $1,000 and beyond seemed to be rolling onto the stage. Indeed, gold blew through previous resistance on Monday to put in an all-time record high of $1,033.90 on the April futures contract. But before the day was over, the market retreated $25 an ounce, as commodities across the board were liquidated.

The unlikely culprit? Fear. Pure, unadulterated fear.

If you cannot view the Daily Gold Chart, go here.

Often viewed as a favorable development for gold, this economic crisis spilled over into the commodities markets because so many of today's hedge funds have been riding the natural resources bull for the last several years. The funds have become as significant a force on price behavior as the commercial players like miners and oil refiners.

When Bear Stearns was crushed under the weight of bad paper assets, high leverage, and big margin calls, the inevitable result was a lot of phone calls going out to see who had exposure, and who might be the next domino to fall in the banking business.

The word of the day became "de-leverage". Reduce risk. Reign in your exposure to anything and everything, because nobody is sure what's going to happen next. The bankers who finance the hedge funds got on their phones and told them the same, and thus a profoundly bullish development for gold born in the financial system quickly became liquidation frenzy, with frantic sell orders flooding the trading floors around the world. Sell stocks. Sell gold. Sell everything... reduce our exposure to anything that moves until this storm blows over.

Commitment of Traders (COT) reports for gold show the precarious position of the hedge funds and other large traders in the market. As of last week, these players held nearly a quarter of a million long contracts of gold at the COMEX, compared to a short position of just 42,000 contracts. Well rewarded in recent months for their bullish posture, the demand came down from the financial powerhouses to unwind positions, to offset whatever positions were tying up cash or credit on balance sheets of the big investment banks. Because the overwhelming weight of the market movers was to the long side of the precious metals, buy orders were swamped with sell orders and the markets tumbled. Even as the fear grew -- a typically bullish environment for gold -- the selling intensified.

By Tuesday's close of business, Gold had retreated more than $50 from the record high, bringing the market back below the psychological level of $1,000 and doing some technical damage to the charts. This happened even with the Fed moving forward on its march towards inflation madness with a 75 basis point cut in the Fed Funds rate.

As gold went, so went the silver market. With 60,000 long futures against a mere 9,000 short contracts, large traders were also caught long here and forced to unwind, with silver falling more than $1.60 off the highs during Monday's bloodletting. Platinum as well got hit hard, dropping an extraordinary $140 per ounce during Monday's session.

If you cannot view the Weekly Silver Chart, go here.

If you cannot view the Daily Platinum Chart, go here.

The downside of the global 'de-leveraging': it puts a big damper on the speculative money that has fueled the precious metals rally throughout the last year. As banks tighten their reigns and go into overprotective mode, the opportunities for hedge funds to make big bets on the commodities presses up against the realities of the credit crunch. The upside, the disastrous condition of the paper asset world, from municipal bonds to asset backed securities to 'rock solid' blue chip financial stocks like Bear Stearns, leaves what speculative money remaining with virtually nowhere else to go but back into the hard assets.

When the smoke clears and the weak hands fold, when the ever-devaluing cash sitting on the sidelines decides that the bigger risk is not taking a risk begins looking for the next 'place to be', they will likely see the fundamentals once again: Falling rates against a slowing economy. Spurious central bank interventions and dismal economic forecasts, and an economic policy to restart the housing sector, prop up the stock market and let currencies of the world fall into disarray if need be.

And likely they will see the price of gold and silver, platinum and palladium all having made modest retracements from the current nosebleed highs. And they may be inclined to realize that the loss of the panic liquidators represents an opportunity for the well funded big traders to step back into the market. The old long-only funds with the wherewithal to do so are likely to flock back to the safe-haven of the precious metals as the dominoes continue falling on Wall Street and around the world.

If we're very lucky, we'll see a full blown retracement to the $926 an ounce level in the nearby gold futures and a retest of the high $17.00 level in silver futures. Barring an all-out commodities collapse preceding the second great depression (and although many are predicting just such a possibility, we are remaining cautiously optimistic for now), these levels should hold, and the deteriorating paper money world of investments gone awry will again yield to the tremendous force of the precious metals bull market, propelling the entire complex to highs above and beyond Monday's historic peak.

DISCLAIMER -- THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. PAST PEFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.FUTURES & FUTURES OPTIONS TRADING IS COMPLEX AND CAN EXPOSE YOU TO UNLIMITED RISK. NONE OF THE TRADES DISCUSSED TAKE INTO ACCOUNT FEES, COMMISSIONS, OR SLIPPAGE, ALL OF WHICH CAN NEGATIVELY IMPACT YOUR TRADING RESULTS. ALL TRADE CONSIDERATIONS LISTED BELOW ARE MERELY IDEAS THAT ARE SUBJECT TO CHANGE BASED ON MARKET FACTORS. CONSIDERATIONS MAY HAVE NOT YET BEEN AND MAY NEVER BE EXECUTED BY GREENRUSH CAPITAL MANAGEMENT, LLC. NOT ALL ACCOUNTS ENTER AND EXIT TRADES AT THE SAME LEVELS, THEREFORE THE REPORTED PROFITS OR LOSSES ARE AN APPROXIMATE AVERAGE OF ALL TRADES TAKEN AND ARE NOT ADJUSTED FOR COMMISSIONS OR FEES. INFORMATION PROVIDED IS COMPILED BY SOURCES BELIEVED TO BE RELIABLE. GREENRUSH CAPITAL OR ITS PRINCIPALS ASSUME NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS AS THE INFORMATION MAY NOT BE COMPLETE OR EVENTS MAY HAVE BEEN CANCELLED OR RESCHEDULED. ANY COPY, REPRINT, BROADCAST OR DISTRIBUTION OF THIS REPORT OF ANY KIND IS PROHIBITED WITHOUT THE EXPRESS WRITTEN CONSENT OF GREENRUSH CAPITAL MANAGEMENT, LLC.

30-Day Complimentary Trial of Greenrush Capital Research

Greenrush Capital Research is a weekly commodity market newsletter, combined with intra-day trading alerts and videos. Each report and alert consists of in-depth, detailed trade recommendations for the global futures and options markets. Using futures, futures spreads and various option strategies, Greenrush Capital Research will help you to diversify your trading account by timeframe, technique, and market sector. Sign up today for this exclusive offer.