The conceptual case for gold remains strong. Central banks in the U.S. and Europe have already created massive amounts of credit out of thin air to prop up the banks in particular and the financial system overall. They show no signs of changing this behavior. In addition, real T-Bill yields are significantly negative, which has historically been associated with significant gains in the price of gold.
Recent sentiment measures have indicated high levels of optimism, however, which have been associated with negative returns for gold. Furthermore, commercial traders report a low level of gold holdings, and the behavior of this "smart money" also has been associated with negative returns for gold. As a result, I've expected a correction in the price of gold and have reduced my suggested allocation to gold.
The bigger question is whether gold's 11-year bull market is ending. For now, the uptrend in the price of gold off the lows of 2008 is intact. But a further decline in the price of gold of several percent will breach the uptrend line and cause serious technical damage to gold's bull market.
For now, I'm staying with gold, but with growing unease. The gold market is relatively small, and as a result its price can move sharply in either direction. Don't be complacent if you have large gold holdings. I think it would be prudent to diversify by adding exposure to agricultural commodities.