Gold's worst start to a year in a quarter century and the biggest sales by investors on record are increasing concern that bullion's longest rally since the end of World War I is ending.

Investors sold 106.2 metric tons valued at $5.4 billion from exchange-traded products in February, the most since their creation in 2003, data compiled by Bloomberg show. Another 26.1 tons was cut since then. Credit Suisse Group AG and Barclays Plc say the 12-year rally will peak in 2013 and billionaire George Soros reduced his stake in the biggest ETP by 55 percent in the last quarter. Prices are within 5 percent of a bear market after the longest run of monthly losses since 1997.

Hedge funds are now their least bullish since 2007 as economies accelerate and Federal Reserve policy makers review stimulus. Bullion as much as doubled after central banks, led by the Fed, started buying more than $3.5 trillion of debt from December 2008 to restore growth. With global equities at a four- year high and the dollar near its strongest in seven months, eight of 13 analysts surveyed by Bloomberg said they expect lower average gold prices in 2014 than this year.

"There is a belief that the world economy is improving," said John Toohey, a San Antonio, Texas-based vice president of equity investments at USAA Investments, which manages more than $54 billion of assets. "We are especially seeing the signs in U.S. and that may at some point lead to higher interest rates. It seems as if the fast money is moving out of gold."

And:

Soros Fund Management LLC, founded by the 82-year-old who called bullion the "ultimate asset bubble" in 2010, owned about $97 million of metal through the SPDR Gold Trust as of Dec. 31, a regulatory filing showed last month. Louis Moore Bacon's Moore Capital Management LP sold its stake in the SPDR fund, valued then at $16 million, and cut holdings in the Sprott Physical Gold Trust by 53 percent to $12.1 million in the fourth quarter. Spokesmen for both investors declined to comment.

John Paulson, the largest SPDR investor, kept his holding unchanged last quarter, his filing showed. The stake is now valued at $3.4 billion. New York-based Paulson & Co.'s investors can choose between gold-and dollar-denominated versions of most of its funds. The 57-year-old told clients March 6 that his Gold Fund fell 26 percent this year. Stefan Prelog, a spokesman, declined to comment.

And:

Bullion isn't declining for all investors, amid mounting rhetoric over currency wars. Gold priced in yen rose 5.7 percent this year and in British pounds advanced 4.1 percent.

Central banks added 534.6 tons to reserves last year, the most since 1964, in part to diversify their currency holdings, according to the London-based World Gold Council. Barclays forecasts 300 tons of buying in 2013 and the same in 2014. Lower prices and improving economies may boost jewelry purchases, the biggest source of demand, with the bank predicting a 3.2 percent gain this year, from an 8.2 percent drop in 2012.

The slump in gold is curbing profit for those extracting the metal, in some cases from as deep as 2.4 miles underground. As bullion almost quadrupled since 2003, mining costs jumped more than fivefold, data compiled by New York-based Kenneth Hoffman and other analysts at Bloomberg Industries show. For as many as 11 of the world's biggest miners, production costs averaged $991 an ounce in the first nine months of 2012.

And:

Options traders are increasing bets on more declines. Puts that profit should the SPDR Gold Trust (GLD) fall 10 percent cost 2.1 points more than calls betting on a 10 percent rally, according to three-month options data compiled by Bloomberg. The price relationship known as skew reached a record 3.3 points Feb. 21. Combined ETP holdings stand at 2,479.9 tons, from a peak of 2,632.5 tons in December.

Hedge funds are 84 percent less bullish on gold than they were the month before prices reached a record in September 2011. Speculators held a net-long position of 39,631 futures and options in the week ended March 5, the fewest since July 2007, U.S. Commodity Futures Trading Commission data show.

David Fuller's view A considerable amount of short to medium-term money has definitely moved out of gold since its numerical all-time high at $1921 on 9th September 2011, judging from its current and fourth decline back below $1600.

There are limits to how long investors and traders will hold an underperforming position, especially when other assets such as stock markets, mining shares excepted, are back in form.

Short positions in gold have also been reported to be at their highest levels since at least 2008. Gold bears obviously hope to force bullion beneath its range lows of the last two years. They feel emboldened because the medium-term downtrend since gold last tested $1800 in mid-2012 has yet to be challenged.

Nevertheless, with many traders having cut longs in gold while an increasing number now hold short positions, the potential for a significant rally is increasing. A key question is whether this occurs from the lower side of the current trading band, or will gold take another downward step before a meaningful recovery occurs?

I do not know the answer but since bears currently have the medium-term trend on their side, it is up to gold bulls to prove that previous support near current levels remains strong. They have yet to do so. Meanwhile, there is a risk that investors in John Paulson's fund will also reduce their exposure.

I actually think the long-term bull case would be improved by another sharp decline in the USD price of gold. That may seem illogical, as it would introduce a major trend inconsistency. However, it would also flush out more 'weak holders', while emboldening shorts. This would increase overall bearish sentiment while creating better value following a more deeply oversold condition. Meanwhile, central banks remain net buyers of bullion. However, Total Known ETF Holdings of Gold have broken their 200-day moving average.

Gold can lose its uptrend consistency characteristics, as we have seen, and this can derail the bull market for a while. However, low interest rates and soft currencies remain a long-term bull factor. I still think that higher interest rates are a far greater long-term threat to gold, as we have seen in the past.