Beware of the calls to try to catch falling knives. Stepping in front of the train that is selling in gold and silver may come with severe pain for investors trying to fight the trend. Attempting to call or pick a bottom may also end a career at this point. It was just over the weekend that we highlighted the growing call for $1,300 or even $1,200 gold.

Gold broke under the psychological barrier of $1,500 on Friday, but now the shiny yellow metal is actually challenging $1,400 per ounce. Most likely a couple of things are at work here. One is stop-loss trading and the second is probably margin calls. Kitco even referred to this morning’s action as fear turning into panic selling. China’s GDP running at 7.7%m versus 8.0%, is also hampering gold, but we take that as a confirmation of a trend and not a new trend to watch.

What if those downside calls in gold get even worse? They very easily could, as all that is required is more sellers than buyers. One additional problem is that much of the retail segment got excited about gold when all the $2,000 per ounce calls were being made as the gold prices went from $1,500 to $1,600, and even to $1,700 and higher.

If you review the yearly charts from Kitco on a side-by-side basis as they show them, gold’s flush is coming all at once rather than in a long slow painful dribble. Whether you choose short-term or long-term, this is severe.

To give you an example of how bad this sell-off is, for gold bugs seeing gold drop from a peak of $1,790 or so down to $1,400 is no different from a crash in the equity markets into bear market territory. A drop of this magnitude would be the same as the DJIA falling from 14,750 to about 11,500, and it would be the same as the S&P 500 falling from 1,580 to 1,232 in very short order.

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