Over the past couple days, the price of Gold has been the headline (or at least received honorable mention) for most of the major financial news reporting organizations. Everyone seems to have a different and in some cases arcane rationale behind the move. The most sober offering was by Professor Campbell Harvey of Duke University. He suggests that the price of Gold normalized for the CPI puts fair value somewhere below $800 per Oz. As Gold is currently trading with a $1300 handle, the good professor's work suggests much more room for prices to fall.
Just because something is overvalued, certainly does not mean that the financial markets cannot rationalize the price higher. In this case, however, I think what we're looking at is a slow shift of speculative money out of Gold, as the most recent Fed minutes are suggesting that Quantitative Easing may be loosing its appeal, and the conversation has begun about a Fed exit.
Gold bugs are still going to buy the metal in the event that the world comes to an end and they have to buy groceries the following day, and industrial demand should be fairly stable as global economic growth really isn't worth writing home about. But speculators really don't have a fundamental reason for being net long if the easy money might start slowing and inflation expectations start easing.
Gold should have at least two more downward corrections before it gets back on track with its long term average. The first should be when the Fed finally stops buying Treasuries, the second should be when the Fed starts its rate raising campaign, which I think should take prices down towards where professor Harvey suggests (which I concur with).