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Gold is sinking—and now it could get even worse

Gold hits new low

The gold market showed more signs of weakness on Wednesday as the precious metal closed at $1,259.30 per troy ounce, down another $6.20 after Tuesday's $25 slide. What troubles some traders is that Wednesday's drop takes bullion below its second critical support level of $1,262, meaning that technical pressure could continue to weigh on gold in the days ahead.

"On the first assault, gold held the key $1,262 level as the market easily sliced through $1,277 support in yesterday's trade ... [a] breakdown through the $1,262 level has an immediate target of $1,247," said Peter Hug, global trading director at Kitco Metals in a note to clients Wednesday morning.

Read MoreGold slips to 3-month low, more pain to come: Gartman

Dennis Gartman, publisher of the Gartman Letter, told CNBC's "Futures Now" on Tuesday that gold is "breaking down." He said that gold looks increasingly weak as geopolitical concerns over Russia and Ukraine subside and that the only thing that would motivate him to buy gold would be an "egregious upward turn in inflation" or "a war of some sort," and neither of those seem to realities at the moment.

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As traders keep an eye on inflation, they will likely watch Friday's Department of Commerce data on core personal consumption expenditures for April released at 8:30 a.m. ET. The PCE index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Current expectations are for a 0.2 percent climb in the index.In the short term, both Gartman and Hug expect gold to stay close to current levels.

"I suspect some consolidation should occur around these levels ... shorts may take their $25, wedge break profit and wait for confirmation of further weakness," said Hug.

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In the meantime, Wednesday's stronger dollar offered no support.

"Margin calls follow through selling after yesterday, and a conundrum of stronger dollar versus euro with lower interest rates-unusual occurrences," said George Gero of RBC Wealth Management. "[B]ut dollars are needed to pay for stocks which hit highs."

Where are gold prices headed?

So where does gold go from here?

"$1,247 is a small support, the big support falls around $1,200 to $1,210. If stocks continue to show strength and the Dow goes to 17,000—which isn't that far off—you'll easily see $1,210 get taken out," said Anthony Grisanti, president of GRZ Energy.

—By CNBC's Jackie DeAngelis.

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