Gold bars Japan
Gold bars stored in Japan. Reuters

Gold observers are all over the map about the effects of U.S. monetary policy on their favored investment, even as most hold that a Federal Reserve tapering would bode ill for gold prices.

At least one industry expert, who works for one of the largest North American retail sellers of gold, isn’t afraid to raise the specter of gold falling below $1,000 an ounce in coming months, down from a Monday close of $1,326.

“I can see gold breaking $1,000 an ounce,” said Peter Hug, precious metals director at Kitco Metals Inc., at a New York commodities conference on Monday, among a panel of experts mostly optimistic about gold’s future.

He said, however, that investors must first broadly believe in a U.S. and European economic recovery, and in a return to normal interest rates, before gold could slide downwards.

“This market is very sensitive to economic policy,” continued Hug, citing abrupt market reactions last Friday to remarks by Federal Reserve board member James Bullard, even after Fed Chair Ben Bernanke’s indications that it could be 2014 before tapering starts.

“All it took was one comment…He [Bullard] says, maybe, still in October – metals get hammered and drop 50 bucks,” said Hug.

That heightened volatility led George Milling-Stanley, a longtime gold adviser to central banks, to criticize the Federal Reserve for failing to help stabilize financial markets.

Bernanke’s focus is apparently on the housing and equity markets, whose fragile rebound takes precedence over everything else for the outgoing chairman, replied Hug. That’s seemingly an unwelcome reality for precious metal enthusiasts.

UBS AG (VTX:UBSN) gold analyst Joni Teves puts it more bluntly in a research note from Monday. She wrote: “Gold has a problem, and a sizable one at that. Conviction in the market is limited, amid the uncertainty ahead.”

“Views on Fed policy and timing are likely even more divided now than they were a week ago,” she wrote, underlining increased skepticism among market players about how the Fed makes its decisions. “This all makes the outlook for gold a bit murkier.”

Citigroup Inc. (NYSE:C) commodities analysts noted on Monday that gold is benefiting from a short rally, but is still about 20 percent below its price at this time last year.

“We expect market cheer will be capped and a return to status quo,” they wrote. “Strong gold imports into China YTD [year to date] have been largely offset by record gold ETF [exchange-traded fund] outflows and Indian retail demand at risk.”

Those record ETF outflows didn’t stop Kevin Quigg, a strategist for the world’s largest gold ETF, from arguing that established gold investors should be buying more gold right now.

Since gold should ideally make up 5 to 10 percent of a diversified investment portfolio, in dollar terms, a gold price plunge actually means investors should buy more, he said at the Index Universe commodities conference on Monday.

“Most counter-intuitive thing in the world, to put money where you’re losing it and take money off the table where you’re gaining it – that’s asset allocation 101,” said Quigg, who helps manage the SPDR gold fund. “So people that are allocated to gold should actually be buying more of it.”

That psychologically challenging argument may be hard to stomach for many gold investors, who have seen prices plunge from $1,650 in January to $1,326 currently.

Outflows from gold exchange-traded products have reached a record 694 metric tons for the year so far, according to Barclays PLC (LON:BARC) analysts.

Data on SPDR gold showed that net metric tons held by the trust stood at 910 tons on Monday, down about 440 tons from early January 2013.