“The turn in the gold cycle has likely already started,” the Goldman analysts wrote in the report, after predicting an end of gold's bull run in a Dec. 5 note. “The latest collapse in gold ETF holdings stands in sharp contrast to our assumption that ETF positions were likely driven by longer-term allocation rather than short-term trading.”

Gold for April delivery traded at $1,595.70 an ounce on the Comex at 9:30 a.m. in London, poised for a fifth monthly drop in what would be the worst run since 1997. Holdings in ETPs, also known as exchange-traded funds, fell to a five-month low of 2,536.289 metric tons yesterday and have shrunk 2.9 percent this month, data compiled by Bloomberg show.

Eoin Treacy's view Gold hit a medium-term peak at $1921 in 2011 and dropped abruptly from $1700 to the recent low near $1550 in a matter of weeks. The speed of the decline had an inevitable negative impact on sentiment. Those with short positions have been talking their books and there has been a definite decline in investor interest as highly leveraged traders were forced to liquidate positions. The highly publicised selling of gold by market personalities such as George Soros has cemented this feeling of inevitable doom. However, let us attempt to address the market from the perspective of an unbiased observer.

One of the key characteristics of gold is how much influence investment demand has attained as prices have risen more than six fold in the last 12 years. The Total ETF Holdings of Gold continues to hold a progression of higher reaction lows and is currently testing the region of the 200-day MA. Since inception in 2004, the measure has never sustained a move below the MA. Therefore if the integrity of this source of demand is to remain consistent, it will need to find support in the current area and appears to be doing so.

Gold has been prone to lengthy consolidations in the course of its more than decade long uptrend. In the normal course of an uptrend, the most consistent portion of the trend is observed when there is the greatest difference between supply and demand. As a trend progresses and as it attracts more adherents, we would expect the trend to become progressively more consistent. For gold, the period between 2009 and 2011 was by far the most consistent portion of the chart; albeit while becoming progressively more overextended relative to the MA towards its peak. The period since has been characterised by another lengthy range.

On the one hand this could be considered another one in a sequence of steps in the course of the overall bull market. On the other it could be considered a loss of consistency and potential topping activity. Prices are currently at the lower side of the range. If the bullish case is to remain credible, gold will need to continue to bounce from this level. A sustained move below $1550 would ask big questions about the integrity of what has so far been a twelve year bull market. However prices are currently rallying from that area and the upside can be given the benefit of the doubt in the absence of an downward dynamic.

The Dow/Gold ratio has been a source of comfort for gold bulls as a measure of the commodity's outperformance relative to the stock market since 1999. However the ratio has lost momentum over the last year and some are questioning whether it can reasonably be expected to contract further. On a log scale, the size of the relative moves in the ratios constituents required to move it a full point at the current level is much larger than what was required a decade ago. Therefore, if the bullish case is to see gold return to the valuation relative to the stock market seen at commodity price peaks in 1980 and 1931 prices will not only need to find support at the current level but also move substantially higher, potentially in a mania phase.

While the focus of media attention has been on gold it is worth highlighting that the Dow Jones Industrials has posted two downside key reversals in the last four sessions. Potential for a further unwind of its overbought condition relative to the MA has increased. If gold continues its current bounce and the Dow continues to pull back the ratio should turn downwards, at least modestly, once more.