This report was posted for subscribers of the Fractal Gold Report right after the close on Wednesday, February 29th. To start your free 30-day free trial, including a complimentary subscription to the daily report on equity markets, please follow this link.

Wednesday brought on one of the more shocking trading days in recent gold history, as a "flash crash" hit the gold market while Ben Bernanke was delivering his usual bland remarks to Congress.

Financial journalists were quick to talk about the "disappointment" that Bernanke didn't discuss detailed plans for QE3, but that doesn't make much sense. This bullish pattern was not unfolding merely on speculation that QE3 was imminent. There just really wasn't anything all that remarkable from the Fed chairman on Wednesday, and certainly nothing to trigger this type of sell-off.

The Wall Street Journal ran a story called "Market Roiling Trade Likely Not 'Fat-Finger' Error" that discussed how an order to sell 100,000 treasury futures hit the market just minutes after Bernanke started speaking. This could have caused a cascade effect that knocked other algorithmic and high-frequency trading platforms into chaos, including programs linked to currencies, and therefore, to gold.

There was also a rumor that JP Morgan sold -- shorted? -- a million ounces of gold all at once for an Asian fund, which is 10,000 futures contracts. That is a HUGE order, and that kind of size just cannot be readily absorbed by the gold market. I'm not a gold conspiracy theorist, but it does make you wonder after this type of sudden drop.

So whatever the reason -- algorithms, panic, manipulation, etc. -- the net result was gold plunged $100 from the overnight high to Wednesday's low.

One of the really interesting things about Wednesday was how the carnage was for the most part limited to gold and silver. Other markets saw an uptick in volatility, and some scattered selling, but really nothing close to gold. Even oil came down for a 38.2% retracement and bounced right back up, and stocks didn't really do all that much.

So what the heck happened?

It seems hard to believe, but gold did a 38.2% retracement of the entire move off the bottom in just one trading day, and almost right to the tick. Such a super-intense retracement can still be part of a bullish pattern -- in fact, if the market survives such a test, this sort of hard retracement can become the impetus for a giant rebound, and a trending move that extends for weeks.

Silver also completed a to-the-tick 38.2% retracement of its full move off the bottom.

(Editor's Note: 38.2% retracements are the building blocks of every single trending move in markets, and the closest thing to a "market law" that will ever be characterized. This is because the 38.2% retracement is a component of the golden logarithmic spiral, which is based on the golden ratio and the Fibonacci series. The golden spiral is a foundational pattern for financial markets, as it is a universal shape that is infinitely scalable in both directions, both outwards and inward, which is a necessary characteristic for fractal systems like markets.

So even though it didn't remotely resemble anything bullish, this type of sell-off can still be considered part of an ongoing bullish pattern, in both gold and silver. The problem is the size and scope of the moves in precious metals right now, as these patterns are not exactly unfolding on a "user-friendly" scale. It's crazy out there, and that's not likely to change anytime soon.

But let's go back and take a closer look at the 150-minute chart (shown above), as the fractal dimension got stretched to the low 20s by this drop. This is beyond the boundaries of anything but the strongest market trends, so the odds strongly favor a consolidation/retracement period for gold into Thursday.

The 38.2% retracement of Wednesday's drop is back up at $1,728 - $1,733, depending on whether the tail is significant in the measurement. So gold should have a clear path back up into this zone on Thursday.

If gold gets over this $1,728 - $1,733 zone -- and I think it will, without too much trouble -- then it will be in position to really rocket to the upside, and keep on going for weeks.

In fact, this set-up reminds me of another Bernanke-inspired sell-off about a year ago that was the direct precursor to 14% rally over the ensuing 6 weeks.

An equivalent rally from here will take gold back to the all-time highs around $1,920. But I think this could actually be the set-up for a bigger rally up to the $2,100 target area. A very hard 38.2% retracement typically triggers an even bigger response in the direction of the trend. And I can't recall ever seeing a harder 38.2% retracement.

So it's alarming to see gold plunge like this, but it's definitely not over yet for this emerging pattern. However, the bullish case will suffer a major set-back, at least in the short-term, if gold sinks below $1,690 and can't get right back over.

But if gold holds here, and especially it if quickly rebounds over $1,733, then the bullish pattern should be stronger than ever. In fact, this could be a perfect set-up for options, futures, and leveraged positions, as a market that survives and rebounds after a hard retracement will often see relentless upside pressure for weeks.

More information on the critical importance of 38.2% retracements is available on thefree 30-day tria lto the Fractal Gold Report.)