There is a fair chance gold will experience a serious intermediate term shakeout.
The well established bullish case for gold that central banks are printing ever more money and the mercantilist states with large trade surpluses need to diversify their foreign reserves. This still seems legitimate long term.
However, the prospect for gold price is murky in the next 3 to 6 months. The primary reason is that effective interest rates have gone up drastically in recent months. The banking system is in shock because of the potential Euro bond write downs, and many banks are in the process of increasing interest rates to clients in order to build up a wider interest rate spread buffer. Also, in the face of an uncertain economic environment, banks are less eager to lend.
Carrying gold has a cost, when effective interest rates were low in 2009 and 2010, the carrying cost was minimal. But in a 4% to 5% effective interest rate environment, the carrying cost suddenly becomes relevant. Especially much of the gold buying and so called “holding” are in reality “opportunistic speculation”. High interest rates make holding gold quite disadvantageous when risky assets are not in favor.
The risk of holding gold is getting higher in the face of higher effective interest rate. The trend will reverse when central banks are in aggregate printing money and encourage “irresponsible” lending again.