Last week, all markets were fixated upon the news of both the Euro-area and China PMI falling from the February level. Gold futures dropped $28 to an intra-week low of $1,627.5 last Thursday before recovering to $1,662.4, down only $6.6 for the week.

As of Asia opening on Wednesday, gold futures recovers to around $1,680, helped by Fed’s Bernanke’s remarks this week that the U.S. needs more growth to reduce the unemployment rate, recovery is not yet on a firm path and the Fed considers all options to stimulate growth. Monday’s U.S. data also showed that both consumer confidence and home prices are slipping. The fact that Bernanke did not rule out QE3 bodes well for gold as an inflation hedge.

VIX retraced back to the level as of July 2007 at 14.26, S&P reached a 3-year high on Monday at 1,416.51 while on Tuesday Euro/dollar bounced to this month’s high at 1.3386 and the Dollar Index slumped 2% from the high in mid-March.

However the rise in demand for risky assets and the negative sentiment surrounding gold prompted F.T. to question the gold’s bull-run, citing Credit Suisse who said that gold is now considered a contrarian trade. So far physical demand remains quiet from India and China with Shanghai traders only reacting to strong price corrections. After 11 days of protest by Indian jewellers, the government remained firm on import duty on gold which will double from 2% to 4%. The amount of pent-up demand when the stores reopen would be important to gauge the physical demand from Asia, which should put a floor to the gold price.

Though it is tempting to project short-term corrections into the long-run, investors should ask has the catalyst for gold waned. Globally major central banks are maintaining zero interest rates and negative real interest rate could persist for a prolonged period. Financial conditions and sovereign debt problems have been eased but not resolved, hence further quantitative easing by ECB, Fed or Japan cannot be ruled out, further debasing national currencies. Gold’s function as an alternative currency and hedge, albeit volatile, remains clear.

UBS, Goldman and Anglogold’s CEO remain firm on their gold price forecast this year – gold can still touch $1,800 to $2,000/oz.