Coming Soon: Gold’s Next Breakdown

Gold’s next powerful correction is coming.

It will be quick and painful—much like the two-day massacre we witnessed just a couple of months ago.

Before I get into the details, here’s where the situation stands right now:

Gold futures hit a session-low $1,365 earlier this morning after cratering $20 overnight. Granted, we’ve witnessed some big moves in gold since April (this wasn’t one of them).

But the price action that’s dropped spot gold $50 since Thursday afternoon is telling…

Gold - Spot Price
The situation that has developed since the April crash is strikingly similar to the 18-month topping pattern gold started to show us in late 2011. The only major difference is that in this case, we’re dealing with a timeframe of just a couple of months, as opposed to over a year. Of course, this also means the potential downside correction will happen sooner rather than later.

This time around, $1,350 is the magic number.

Since gold’s meltdown less than eight weeks ago, the metal has made a couple of big oversold bounces. Each of these attempts to regain momentum has two important characteristics. Both times gold tried to move higher, it turned back at its short-term moving average. And each time it fell, $1,350 marked the spot where buyers finally stepped in.

Once $1,350 falls, all bets are off. I suspect a swift move lower once this price is violated. It will happen fast—but I doubt the downside move will be as severe as what we experienced in April. Just to throw a guess out there, I think a short-term target between $1,200-$1,250 looks reasonable. That’s one step closer to my ultimate long-term target between $1,100- $1,000…

You can argue with me on this one until you pass out. But that won’t change anything. Save your breath and prepare instead. Avoid gold stocks—or at least lighten up your load if you’re trying to play hero and hold through the downdraft.

Regards,

Greg Guenthner
for The Daily Reckoning