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By Kishori Krishnan Exclusive To Gold Investing News

Niggling doubts have started to creep in - does gold have enough power to sally forth? Several researchers are revising their forecast and the bullish views are turning bearish. Can gold pull through?

The blaring headlines don’t help: `The yellow metal appears to have lost its lustre’; `Gold price appears to be facing strong headwinds’; `Investors are advised that they can find better returns in other asset classes.

What has brought on this turmoil? To understand this better, let’s take a look at the varied reasons being bandied around.

* The weak US dollar has been a major driver of this year’s surge in the price of gold. However, the currency has recently been showing signs of stabilizing, and could be about to turn upward.

* Risk aversion is gradually returning to pre-crisis levels and inflation fears should abate any time soon.

* The recovery from the deep economic crisis has been fast because of the stimulus measures backed by governments. It may not be sustainable in the long-term.

While many analysts suggest demand for gold would wane in the coming months due to the three factors outlined above, a new report from National Bank Financial Group has also given a contrarian view on the world’s most popular precious metal.

“Investors who dared place some of their eggs in gold in recent years have been nicely rewarded for what they did,” said Stéphane Marion, National Bank’s chief economist and strategist.

“However, the time has come now to revise their positions. If the past 30 years are any indication, gold does not constitute an attractive investment over the long term. Moreover, in times of economic recovery, the return on gold falls well short of the return on the stock market.”

Sorry to bring on the pessimists, but though investors have been happy to go with current momentum, some unease remains over the market’s fundamental picture and the extent of long positioning.

Monetary policy

There are other palpable reasons why the momentum will face a hurdle.

History shows that since 1988, the correlation between bullion and US inflation expectations is just 36 per cent, according to Goldman Sachs Group Inc. That means the price of gold rises and falls with inflation expectations 36 per cent of the time.

Moreover, though risk premiums appear to be falling at breakneck speed, analysts maintain the Federal Reserve and its counterparts around the world would not hesitate to tighten monetary policy if inflationary pressures mount.

Also, don’t forget, despite the structural challenges facing the US economy, the greenback appears poised to rebound on the strength of cyclical forces.

Analysts are also of the view that the price of gold is at its highest value, but the momentum indicator has not yet breached its previous high from this past February.

The momentum indicator seems to be suggesting that this latest move on the part of gold does not have the strength of previous moves and one should be on guard for a reversal.

Mining mess?

To understand why the bull run will probably run out of steam, one needs to take a look at the situation with the gold mining industry in South Africa (SA). One moot point: why are gold mines not able to derive much of the benefit from the higher price?