Gold and silver exchange traded funds were suffering losses of more than 2% on Thursday, breaking support trend lines from the summer rally in the process.

SPDR Gold Shares (NYSEArca: GLD - News) was down 2.2% in afternoon trading while iShares Silver Trust (NYSEArca: SLV - News) dropped 2.9%.

Precious metals were lower after the European Central Bank announced it is cooperating with other central banks to pump more liquidity into troubled financial markets.

Stocks were rising on improved sentiment over the Eurozone debt crisis and the possibility of a Greek default. [Gold and Silver ETFs Lower on Europe, Data]

Technical analysts pointed out that gold and silver ETFs were breaking rising support lines after gold recently formed a potential “double top” pattern. [Gold ETF Technical Analysis: Double Top?]

While the silver price (NYSEARCA:SLV) moves higher with the gold price (NYSEARCA:GLD) during this latest consolidation phase in the bull market for precious metals, Goldmoney’s James Turk expects another violent move higher for the metals, especially the price of silver.

“This move [in the silver price] is going to catch a lot of people by surprise as evidenced by the extremely low sentiment readings,” Turk told King World News, Monday, pointing to the lack of overall enthusiasm in the precious metals market of late, with a relatively steep contango in the silver futures market chain serving to support his thesis. “Those low readings are a clear indication that there is a lot of money on the sidelines that is waiting to jump on board.”

Such low sentiment readings and steep contango prices in the silver futures haven’t been seen since the first quarter of 2010, when problems in the Greek sovereign debt market first emerged. At that time, fears of another Lehman event, this time from Europe, took the DJIA sharply lower from its intermediate post-crash peek of 11,250, down to 9,600, a nearly 15 percent correction in the 30 Industrials.

In contrast, after trading between the $15 and $18 range during a nine-month period of September 2009 and June 2010, the silver price climbed higher in the face of a risk-off-then-risk-on-again trade in stocks of 2010 as the white metal never looked back, soaring to just shy of $50, from the $15 base of the previous flagpole pattern.

The tremendous rally in the silver price took Wall Street by surprise, as any asset rising this rapidly typically begets a much wider audience beyond the silver bug watchers. That contrarian signal suggested to legendary commodities investor Jim Rogers that the silver price would need to “settle down” before he’d become a buyer again. The weak hands had taken over the silver market.

But as the silver bugs remember, all too well, the steep and dramatic drop in the silver price to $25 sent the weak hands to slaughter, as a series of five margin hikes compound the pressure of a rapidly falling market to sell into the hands of the strong.

“During a big correction like the one we’ve just gone through, a lot of weak hands get shaken out of the market,” said Turk. “We know that has happened because of the change in open interest and also because of the smaller volumes of late.”

Today, the situation has reversed direction, according to Turk. Silver futures are back in contango and Jim Rogers is talking about silver once again. Moreover, as the crisis in Europe escalates, Europe’s new ECB chief, Goldman Sachs alumnus Mario Draghi is now printing approximately 30 percent more than the Fed is—and the European central bank needs to print more, and could get some needed help from the Fed, according to zerohedge.com.

“Throughout history, when things have gone wrong, they [central banks] print money … when they print money, you should own silver, you should own rice, you should own real assets,” Rogers said in an interview with CNBC of Nov. 23. See BER article.

Back to Turk, who said he’s calculated a target for the silver price during the upcoming next leg higher. By taking the April 2011 high and subtracting the September 2009 and June 2010 base price—a common and fairly successful technique applied in the use of technical analysis—Turk expects the next move higher will achieve an all-time record price for the metal.

“The first we have already spoken about, namely the bullish flag pattern on the weekly silver chart (above). When silver breaks out to the upside, this flag measures to a target price of around $68 to $70,” Turk explained. “More importantly, the jump out of the flag should happen more quickly than the $18 to $50 move we saw back in 2010 and early 2011, which took about nine months.”

Silver keeps breaking down. While this is a frustrating trend for those allocated to the white metal, it is far more disconcerting for the stock market outlook.

The fundamental thesis for owning silver (SLV) certainly has not changed, which is hard asset protection against aggressive monetary stimulus, pricing instability and currency debasement. If anything, this thesis has actually strengthened in recent weeks, as the situation remains tenuous in Europe and the global monetary printing presses are now either running full steam (the ECB) or set to crank up at a moment's notice (the Fed).

Ever since U.S. policy makers moved toward a weak dollar policy in early 2002, silver has performed exceedingly well. Over the past decade, the price of silver has consistently risen to post a total gain of nearly +600%. And while it endured a few short-lived fits along the way that come with the territory of owning silver, only once did it experience a sustained and prolonged pullback of any notable magnitude. And it was this past episode that may be telling of what might be lurking around the corner for stocks as we enter the New Year.

At present, silver is trading at a price that is both -10% below its 50-day moving average and -20% below its 200-day moving average. This has essentially been the case since right before Christmas on December 14.

Only once in the last decade has silver shown a similar degree of weakness. After moving sharply higher throughout much of the first half of 2008, silver began breaking down in August 2008. By August 15, silver was trading more than -10% below its 50-day moving average and -20% below its 200-day moving average. Starting only a month later, Lehman Brothers declared bankruptcy, Washington Mutual failed, liquidity markets seized up and the stock market entered into the first of three cascading declines in early October.

The fact that silver is acting in a similar fashion today is a troubling sign. First, we have seen persist indications that liquidity markets have been seizing up in recent weeks, particularly in Europe. Also, Italy is facing several major sovereign debt refinancings starting next month, which may be difficult to complete with 10-year Italian government bond yields still hovering around 7% despite already extraordinary assistance and during the relative quiet of the end of December trading week. In addition, the potential also looms for the failure of a major financial institution that could spark the similar contagion effects that we witnessed in 2008. And unlike Lehman in 2008 and more like Credit-Anstalt in 1931, global policy makers may lack the firepower to squelch the blaze this time around. These are just a few of the many risks overhanging the market at present.

With all of this being said, perhaps the weakness in silver this time around is just an isolated event. But the fact that it is occurring during a period of similar global financial stress should be noted and monitored closely at a minimum as we move into the New Year.

Given the potential risks, investors may be well served to use recent market strength to dial down risk exposures in their stock allocations. And it may be best to concentrate any remaining positions in higher quality defensive names with U.S. focused businesses. Included among these are J.M. Smuckers (SJM) and WGL Holdings (WGL), both of which held up considerably better than the overall stock market during the 2008 crisis.

Looking beyond stocks, U.S. Treasuries continue to provide an attractive safe haven. This includes U.S. Treasury Inflation Protected Securities (TIP), which provide a safety destination during periods of crisis as well as protection against any inflationary concerns over rampant money printing in the months ahead.

On the topic of further monetary stimulus, Agency MBS (MBB) also offer appeal as it is the likely focus of any QE3 program initiated by the U.S. Federal Reserve. Lastly, gold (GLD, IAU, PHYS) and silver (SLV) provide both a potential safe haven against crisis as well as potentially strong upside in the event of further aggressive global monetary policy actions. And since both appear to be leading indicators of the potential shocks ahead for the stock market, the downside moves in these precious metals may also be entering the advanced stages at this time.

This post is for information purposes only. There are risks involved with investing including loss of principal. Gerring Wealth Management (GWM) makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by GWM. There is no guarantee that the goals of the strategies discussed by GWM will be met.

Disclosure: I am long SLV, SJM, WGL, TIP, MBB, GLD.