Market shenanigans continued Tuesday, with various asset classes going vertical in different directions as the fiscal cliff negotiations in Washington seemed to hit an impasse. The market is so thin and broken right now, with retail investors in bonds or cash, that trading algorithms are feeding on themselves. It's ugly to see.

Many of the moves are contradictory. The dollar is lower, which suggests inflation. So are Treasury bonds. But copper is moving lower, suggesting slower economic growth. And gold and silver are being hammered, something that is typically accompanied by lower inflation and a stronger dollar.

I think the drawdown in gold and silver represents the best opportunities for profit in this volatile market environment.

For one, both gold and silver are knocking out major technical support. The SPDR Gold Trust (GLD) is dropping out of a two-month flag pattern and is now testing its 200-day moving average for the first time since March. Gold-mining stocks are also very weak, with the Market Vectors Gold Miners (GDX) threatening to drop out of its consolidation range -- a move that would put its summertime lows back in play.

The catalyst for all this appears to be a realization that cheap money stimulus out of the Federal Reserve just isn't an effective salve for the economy anymore. The credit channel remains too constrained. And with the Fed committing to pulling back if the inflation rate moves over 2.5%, they are starting to remove the specter of hyperinflation -- one of the primary motivators of gold and silver investors.

This is all happening in the context of very bullish sentiment towards precious metals -- suggesting a violent decline will be needed to restore equilibrium before prices can move higher again.

There's a lot of opportunity out there for nimble traders to snag some profits in this area. I'm adding new short positions against New Gold (NGD) and Pan American Silver (PAAS) to my Edge Letter Sample Portfolio. I don't know how long the drawdown will last. But it's strong enough that I want to trade it.

Disclosure: Anthony has recommended NGD short and PAAS short to his clients.

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