Gold is re-testing its 200-day average, which was recently broken for the first time in 3 years. The previous move was triggered by a multi-month triangle pattern breakout (see both daily and intraday charts).

A number of "bargain hunting" trend-followers will still be watching for any potential recovery back above the 200-day average which is currently trading at $1636. Bulls would need strong confirmation above here (on a close basis).

Failure to do so will heighten risk for a much larger decline that we have been anticipating, if a weekly close beneath $1530 is confirmed. Our cycle analysis continues to highlight downside targets into $1300 and perhaps even $1040-1000 (12-year channel-floor/see top chart insert).

Speculative (net long) flows also support this view having recently breached a key downside level which may threaten over 2-years of sizeable long gold positions. This will trigger a temporary, but dramatic setback that would ultimately offer a unique buying opportunity into this coming summer of 2012.

Daily Technical Report