The technical breaks hit some emotional chords. John Hathaway, senior managing director of Tocqueville Asset Management, blamed the drop on short-term technical trading. "Once gold traded below roughly $1,650/oz, it showed vulnerability, which encouraged aggressive traders to test support beneath," he said. "The bigger question is the longer-term trend. While unnerving, recent weakness seems to fit within the context of a long-run bull market. There are a number of indicators to suggest this was a phase of extremely intense liquidation, which typically sets the stage for a powerful advance. Of course, only time will tell." He said "the fundamentals seem stronger than ever," and added, "Therefore, we have not reacted to the drop with any sort of tactical trading measures."

Meanwhile, Adrian Day, CEO of Adrian Day Asset Management, put the downward movement in context. "We already had a weak backdrop, with a steady decline in price since the exaggerated peak in September. With an improving economy in the U.S. and a strong stock market, there has been some switching from gold to equities and a growing sense that one does not need gold in such an environment," he said. He pointed to a growing focus on when the Federal Reserve's bond buying program might end, due to Fed Chairman Ben Bernanke's comments that the economy is improving, and added, "In such an environment, the market looks for negative news."

Day's reaction was to start buying gold again as soon as it fell under $1,620/oz. "This area�$1,580�1,620�looks like good support," he said. "More importantly, the fundamentals remain positive," he added, referring to high unemployment and debt rates and weak GDP numbers from Japan and Europe. "Yes, the stock market has been strong, but the market could be spooked by the next Washington spending showdown. Moreover, with retail investors putting money into U.S. equity funds for the first time since mid-2008, this could be seen as a contrary indicator; having missed the market doubling, are retail investors putting in the top, as they often do?"

Day saw hedge fund gold sales as "a positive contrarian indicator." He said, "Hedge funds tend to move to where they see short-term opportunities. They could flow back if, for example, the stock market drops on the Washington budget stalemate."

Barclays analysts sounded a more wary note. "The break below $1,625/oz in gold wrong-footed us," analysts at Barclays wrote in a note to investors. "Below $1,584/oz would target $1,525/oz before we look for a base. Falling volumes with the move lower in gold warn of declining investor commitment," MarketWatch reported the banker as saying, that if physical demand doesn't start to respond to the recent pullback, "the floor for prices is set to become increasingly fragile."

At Deutsche Bank, commodity strategists saw support for gold at $1,600/oz. "Furthermore, we believe that on [a] 12-month timeframe," both gold and silver appear to offer "compelling value," the strategists were reported as saying.

Dr. Michael Berry, co-founder of Discovery Investing, wrote in Morning Notes on Friday, "As competitive currency devaluations continue around the world and as central bankers continue to accumulate gold and print fit currency to depress interest rates, gold and silver and other precious metals, as well as hard assets, must eventually appreciate in price." His conclusion is that the price of gold either has or is likely to make bottom in the near future, after an almost 11% decline from its $1,797/oz high last October. "The leverage of the legacy producers will be very significant in the next year or two."

He also saw the downward pressure on junior mining companies as a positive for the physical gold price. "Compounding the political pressures, the plight of cash-strapped juniors could limit discovery," which he estimated to be a 10-year process. "If this is the case within the next few years, there should be significant upward price pressure on the metals in general and gold and silver specifically."

Twenty analysts surveyed by Bloomberg last week expect gold to fall next week, while 11 were bullish and three were neutral, making the proportion of bears the highest since Dec. 30, 2011.

A Kitco News survey of 25 bullion dealers, investment banks, futures traders, money managers and technical-chart analysts showed that nine expected prices to go up, 12 predicted a decline and four called for sideways price movement.

Many analysts are looking for reaction from Asia this week after the New Year holiday. When the North American markets return after their respective holidays, headlines about the sequester and the release of Federal Reserve meeting minutes could also have an impact.

Back at Tocqueville, Hathaway concluded, "The lesson, which I believe will become evident in six months or so, is that bull market shakeouts are designed to ensure that the fewest number of possible participants will be aboard for the entire ride."

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