What a nasty day for the market, but what a downright-wicked day for gold. I'm not surprised gold futures fell to a low of $1348 per ounce, though I'll admit I'm surprised the metal went straight there after Friday's sizable pullback. Normally a dip like Friday's 5.4% plunge would have set up at least a small bounce. This time though, the sellers started the day with an agenda. Anyway, the media's coverage of gold's implosion is taking center-stage today, even more-so than the market's big slide. As much as I hate to jump on the bandwagon, I have to get into that dance. Don't worry though.... my two cents is guaranteed to be a take you've yet to hear. After that, we'll poke and prod the broad market for you. It Was Never More Than a Dream Why is gold sinking so fast? The answer depends on who you ask. Some say it's because China's GDP growth 'only' rolled in at a pace of 7.7% last quarter, versus expectations of 8.0%. Others suggest it's the notion that things in Europe - and the Euro itself - aren't disintegrating as some thought it would. There are even whispers that the United States' Federal Reserve is looking for a way to slow or stop its quantitative easing program. They all make sense as reasons for gold's demise, on the surface. Take China as an example. While China's slow-down may well be bad for China as well as the global economy, it's going to have little effect on global inflation. In fact, if China's economy is weakening, the response may well be to push its currency lower, in order to rekindle the flow of foreign dollars into the country. That means the value of the U.S. dollar will move upward, which in turn means gold (which is priced in U.S. dollars) will be pressured lower. If the Fed kills its QE efforts, that too could end the decent likelihood of inflation.... the whole point of buying gold at all, for most people. The point is, the logic all makes sense on the surface. May I put another possibility on the table though? While I've been around the trading block more times than I care to admit, I'd never pretend there's nobody out there who hasn't been around it a few more times than I have. On the flipside, what's going on with gold now is something I've seen plenty of times before. The reason gold's getting crushed right now is because something spooked the herd. All it took was a nudge. I know that's an unsophisticated take, but there's actually a lot of science and psychology to it. [If you don't believe it, check out 'Extraordinary Popular Delusions and the Madness of Crowds', by Charles Mackay.] That's not to say all those fundamental factors aren't playing a role, but more than anything else right now, gold is getting sold en masse because all the folks who bought it up between late-2008 and late-2011 are weary/bored of the trade. Even before Friday, quarterly and monthly redemptions of the SPDR Gold Trust ETF (GLD) had been at record levels. If you're wondering why, there are reasons for those who look past the headlines. All the inflation that was supposed to materialize after several rounds of quantitative easing has yet to appear. Our annualized inflation rate since then has never moved above 3.87% in the meantime, and has averaged only 2.3% since 2011 when it turned positive again. If it hasn't shown up yet, what could possibly happen now to spur any meaningful inflation in the future? Currency wars? Not only were they never going to happen, but the U.S. Dollar Index has actually flat-lined over the past couple of days, and has fallen 1.15% since late March. If it's really a greenback-driven commodity, if anything, gold should be moving higher right now. That's not how it is though. Gold's fallen 12.3% in two days. And Europe? Come on. Nobody really knows what's going on in Europe, but if there was any trouble there, again, it would more likely be good for gold than bad for it. No, gold's getting killed here because gold is a philosophy more than a physical asset. There's nothing wrong with that, but philosophies can stop and turn on a dime much faster than physical assets can. We saw it happen with oil between 2005 and 2007, and we saw it with tech stocks in the late-90's. Traders drank the gold Kool-Aid then but have become bored with it in the meantime because of a lack of progress. Now they're dumping it. At the same time, all kinds of pent-up program-trading and institutional positions are driving the nail in the coffin. Lesson learned: As long as what was happening out there in the world jived with the usual reasons gold rises, gold's bulls sang it from the rooftops. When gold behaved the wrong way over the past three years, it was dismissed as an errant move. Just because the media and Wall Street verbally legitimize a trade doesn't make it a legitimate trade though. They managed to keep this bubble inflated for three years; most of them even participated in it. The emperor just finally realized he wasn't wearing any clothes. Don't get me wrong - I love trading a good bubble as much as the next guy. When you really start to think a move like gold's is anything more than a bubble though (with all the vulnerabilities thereof) then you get hit with two-day, 12% pullbacks. As for what's apt to happen next, I believe gold is due for a quick, trade-worthy bounce. I also believe that bounce should start to take shape tomorrow. This is one time, however, I wouldn't try to catch a falling knife. A lot of people got their worlds rocked over the past couple of days, and that's causing stress, tension, and fear - emotions that cause unpredictable behavior. When the rebound rally starts to take a clear, trade-worthy shape, we'll talk about it in the newsletter. Either way, I don't think gold's due for a major rebound. The cat's out of the bag, and now that the market realizes it's not bulletproof, interest in gold won't be the same. Those short-term bullish pops will be opportunities to get short again. Oh, and just for the record, it's a myth that gold is the only meaningful currency in the event of a collapse of modern society. It may be seen as a universal currency, but that only matters if the currency-exchange system remains intact and some currency remains more valuable than others. In the event of a complete crap-out of life as we know it, history suggests we'll actually revert to a barter society where we exchange goods and services of practical value. Now, about the stock market... Ouch Actually, the market's pullback today is a lot like gold's pullback in that a few headlines got the credit for the selloff, but in reality traders were just looking for an excuse to sell. And sell they did. The market lost 2.25% of its value on Monday. It's not clear how much of the selloff has to do with the explosions in Boston, but bear in mind the bulk of today's losses were seen before that tragedy near the finish line of the Boston Marathon. Now what? It's a little ironic, but the best thing that could have happened for the bulls today was the massive size of the selloff. From here it will be easy to bang the 'oversold' drum in an effort to spur a bounce. I'm not so sure anyone will be able to bang the drum loud enough to make a rally of any meaningful size though. Last week we talked about the importance the 1570 level for the S&P 500, and the index just blew right under that line in the sand today. It also closed under the somewhat-important 20-day moving average line. The volume behind today's selling was well above average too. There's no way of getting around the fact that the bigger-picture momentum reversed today. We may get a little sympathy buying tomorrow and/or Wednesday, but the damage is done - this should be enough to put the summertime weakness into motion. Now we just have to wait and see how it all unfolds. The game plan: Let the dust settle after today's destruction. The bulls are going to push back sometime soon, and when they fail to get traction, THAT will be the next shorting opportunity. Let's chat again tomorrow after we see the response to today's action, shall we? In the meantime, I strongly recommend you take a close look at what the guys over at the SmallCap Network Elite Opportunity are doing. Their newsletter from today also looked at gold and the market, and I don't mind telling you the analysis they mailed out to their subscribers is even deeper than mine. They've also got a gold-based trade in the hopper, and for a very good reason. There's only one way to know what it is though. And for the time being you can even find out risk-free - the SCN EO still has the free two-week test drive on the table. Learn more about it here. Or, copy and paste the following link in your browser: http://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=SCN+Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/