Is it about to get way worse for gold?

Bullion is down 5 percent in a week, breaking below the $1,180 level where gold futures had found support to hit a four-year low. And according to Mark Dow, what we're now witnessing is the second phase of the gold bubble collapse.

"2011 was the first phase of the gold bubble unwind. We consolidated for the past year. And it looks as though we're starting the second and more difficult phase of the unwind of the bubble," Dow said Tuesday on CNBC's "Futures Now."

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As Dow explains it: "Gold benefited significantly in the post-crisis period from the monetary policy story. But a lot of fears in the monetary policy phase have proven unfounded."

To Dow's mind, prognosticators and fund managers streamed into gold because of fears about a bubble in stocks, or a bubble in bonds, or about the prospect that stimulative Federal Reserve policies would create massive inflation.

However, with earnings continuing to rise, domestic economic data continuing to improve and no runaway inflation in sight, these fears have thus far proven unfounded. And therein lies the irony.

"All of the guys over the past five years who have been talking about bubbles in stocks and bubbles in bonds, they hid to protect themselves in the only true bubble," said Dow, who writes at the Behavioral Macro blog. "In fact, they've created their own bubble trying to avoid perceived bubbles, and now they're trapped."

He says the downside for gold could be far below current lows of $1,160 per troy ounce.

"My guess is we have to go back, at a minimum, to the precrisis levels. Now, bubbles can overshoot, so they could go a bit farther. But you can see on a chart that precrisis, we were probably $700 to $750 in gold," Dow said.

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However, the real sign that the bubble has finally popped will not be a price, but a mood, he says.

"When you hear guys stop saying, 'Well no, it's not that inflation hasn't happened, it's that it hasn't happened yet,' then the bubble has probably unwound," Dow advised.

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