For me the bigger driver of this gold sell off is the cracks beginning to appear in China.
10 year Chinese bonds have broken through resistance and are now pushing towards 3.6%...
Coupling higher interest rates with the worlds biggest property bubble makes for a bad combination.
And with China being the biggest buyer of commodities in the world (by a country mile) any hiccup there and all commodities will get smashed (as we are seeing).
So as much as gold is selling off, it's outperforming other commodities.
In the longer run, it would seem likely that the Chinese will deal with the problem of bad debts the same way other nations have dealt with the problem (quantitative easing).
In the short run a leveraged market does crazy things (because its forced to) but in the longer run it'll be more practical.
That said, at the current USD value I think gold needs to hold above US$1215 or it will prompt the next leg down and I would expect things to get extremely ugly for gold if it fell below US$1175 and a move back above $1265 will be bullish.
Next few days should be interesting.
Though its interesting to see alternative currencies like Bitcoin continuing to surge (broke $1500). Shows that people are looking for alternatives somewhere in the world (probably China).
