Declines in the price of oil, a bounce for the U.S. dollar and an easing of inflation expectations have all been blamed for gold’s more than US$250 per ounce decline from its record high in March. But the falling gold price is a direct consequence of the global credit crisis, an “innocent bystander to the financial hurricane” plaguing global markets, says Jeffrey Nichols, managing director of American Precious Metals Advisors.

“The yellow metal own positive fundamentals – and even its role as a safe haven in turbulent financial seas – have simply been overwhelmed by the massive storm-surge flight to cash and the indiscriminate selling of securities and commodities, selling that has been amplified and accelerated by automatic program trading, short covering, and technical triggers on the way down,” he said in a note.

As balance sheets at financial firms are hit by plunging asset prices, Mr. Nichols says they and other lenders are hoarding cash, fearing more trouble in the sector. And the “teetering” economy may just force the Federal Reserve to cut its key Fed funds rate – which might hurt the greenback and put gold “back onto a more sustainable upward trajectory,” he added.

“Gold after the fall may be tarnished – but fundamentally nothing has changed about the metals increasingly supportive supply/demand situation,” Mr. Nichols said, suggesting shaken confidence in financials should benefit gold once the selling of financial assets and commodities has run its course. “Don’t be surprised if gold’s upward ascent is just as fast and furious as has been it’s recent decline.”