(1) My watch had gone.
(2) My watch was gone.
Which is correct?
If both are correct, is there any difference in meaning or connotation between them?
Number 1 is not used in US English.
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Both of those are correct. Strictly speaking "was gone" refers to state, while "had gone" refers to prior event, but in the normal context of loss or theft of your watch, they are near enough interchangeable in meaning.