Gold has triggered a strong bearish engulfing pattern reversal beneath key level at $1755, while also breaking out from an important contracting range. This is further weighed down by a recent DeMark™ exhaustion signal (which appeared on the 02nd Feb).

Our short strategy has already been activated in anticipation of this near-term downside risk which now offers a sharp decline back into the old trend-line and 200-day average, both holding around $1650/54.

Moreover, a sustained confirmation beneath here would resume risk for a much larger decline that we have been anticipating, if a weekly close beneath $1530 is confirmed. Keep in mind that our cycle analysis continues to highlight initial targets into $1460 and $1300 (see top-left chart insert).

Speculative (net long) flows also support this view having previously breached a key downside level which may threaten over 2-years of sizeable long gold positions. This would trigger a temporary, but dramatic setback that would ultimately offer a unique buying opportunity into this coming summer of 2012 (chart not shown).

Only a sustained confirmation above $1810 will put the bearish scenario on hold and offer further extended recovery higher on gold.

Daily Technical Report