Following a 5% increase and a rise in exchange-traded funds holdings in the third quarter, gold prices fell back to earth Monday, falling 1%.
It was gold's greatest one-day fall since July.
Most of the news that hurt gold prices was fleeting.
Positive U.S. retail sales data raised concerns the Fed would abbreviate its purchases of mortgage-backed securities. Investors were also worried early in the week about the possibility of weak Chinese economic data, although that didn't materialize - China posted growth of 7.4% on Thursday, as expected.
Finally, as Mitt Romney rises in the polls there's concern that as president he would implement bigger cuts to U.S. government spending, which would be bad for gold prices.
Bear Not Threatening Gold Prices
While any drop in gold prices warrant attention, there are several reasons this is anything but a gold bear market.
One is gold stop-loss selling.
"After QE3 there were a lot of longs in gold. Since $1,780-$1,790 seemed heavy, some funds sold positions to take profit and now the long positions are getting squeezed," Pete Fung, head of dealing at Wing Fung Precious Metals, toldReuters.
A second is a correction, which is what we may be seeing now.
"The overall attitude towards the yellow metal remains positive looking out over the months ahead, but hesitancy to express that view in the near term is becoming an obstacle. It feels like gold needs a healthy clean-out at this juncture," UBS analyst Edel Tully wrote in client note Wednesday.
"A further correction from here would ultimately be beneficial, though, given the sharp run-up in prices since mid-October, the repeated failure to breach $1,800 and the degree of speculative length," Tully added.
Europe Boosts Gold Prices
Good news from Europe helped gold prices recover a bit on Wednesday.
In morning trading, December gold was up $4.60 at $1,750.90 an ounce.
"Some minor positives from Germany relating to Spain and also their retention ofinvestmentgrade for Spanish bonds helped gold somewhat," George Gero, precious metals strategist at RBC Wealth Management, wrote in a research note.
HSBC had jumped on the correction bandwagon but sprinkled it with some long-term optimism.
The bank cut its 2012 average price outlook for gold from $1,760 to $1,700 per ounce, but raised its 2013 forecast to $1,850 from $1,775, citing increasing investor demand and commodity prices.
"We remain bullish on gold, and we expect prices to reach $1,900 an ounce by year-end,"
HSBC chief commodity analyst James Steel said in a research note Wednesday.
Gold was down about 0.5% on Thursday, to $1,746.60 as of mid-day. Gold prices could dip again Friday, but help is on the way.
For one thing, festival and wedding season has begun in India, which always adds to gold demand and drives up gold prices.
And in the bigger picture, central banks all over the world appear willing to keep pumping more money into their economies, which will exert plenty of upward pressure on gold prices in the months ahead.
"The backdrop of negative real yields, a slow recovery and a likely continuation of expansionary monetary policies - with all the risks these present - provides further support to the long-term strategic investment case for gold," the World Gold Council said in its third quarterly review.