Is it over for gold?

That's a distinct possibility, according to one long-time gold bull who says investors should cash out of the precious metals patch and sit on the sidelines for a while.

"We believe that the bulk of the near-term gold rally is now complete," writes Frank Barbera, editor of the Gold Stock Technician newsletter, in a "Flash Update" note sent to his subscribers earlier this week.

Barbera has been consistently upbeat on the commodity and its related stocks since the gold bear market ended in 1999 and prices ran up from an average of $280 an ounce that year to above $670 recently.

However, now he says the price is set to take a beating, potentially all the way back down to $510 an ounce. As recently as Monday, gold was above $678 an ounce. Friday, it was below $652.

The signals for the forthcoming drop, he says, are bearish technical chart formations, reflecting three failed attempts by gold prices to pierce the psychologically important $700 an ounce level.

At the same time, Barbera says there are fundamental reasons for taking a defensive position. Eventually, the fact that the Federal Reserve has held interest rates high and won't likely lower them anytime soon will start to have an adverse impact on the economy and the financial markets alike, he says. Typically, higher short-term interest rates have a cooling effect on the overall economy and speculative activity.

(To see a video on the outlook for gold, click here.)

Because of the high degree of "linkage" between the various markets, any financial downdraft won't be restricted to the major stock indices, but instead will likely precipitate a plunge across the board, including for gold prices, he says.

Until lately, he recommended Goldcorp ( GG), Agnico-Eagle ( AEM - Get Report), Yamana Gold ( AUY - Get Report), Silver Wheaton ( SLW), Golden Star Resources ( GSS - Get Report) and Newmont Mining ( NEM - Get Report) as core holdings, but now he believes they need to go.

Whether Barbera's view on gold turns out to be correct, what is true is that the price action so far this year has been nothing to write home about, with sideways movements being the story since the beginning of February.

Interest appears to have been waning. The tonnage of gold bought in the first quarter was down 26% from a year earlier, and more recently investors bailed on the StreetTracks Gold Shares ( GLD - Get Report) exchange-traded fund, causing it to liquidate almost 40 tons of its metal inventory from mid-April through the end of May.

Subsequently, some gold has been reclaimed, but the ETF's total holdings are not yet back to the high of 501 tons reached April 17.

In addition, new figures from the U.S. Mint show bullion coin sales for May were about half the level of last year, and they look likely to be low relative to June 2006, as well. These data points are important because they reflect the sentiment of investors, whose heavy buying over the past few years helped drive gold prices to levels not seen since 1980.

Other factors that have traditionally spurred investment demand have been expected future weakness in the greenback and the perceived threat of consumer price inflation. It's no coincidence that gold's bull run has coincided with a 30% decline in the value of the greenback against the euro over the past five years.

A firming dollar would be a bearish factor for gold prices, at least in the medium term. Additionally, a decrease in activity of producers unwinding their hedges could diminish demand for gold.

By 2002, gold producers collectively sold forward an estimated 3,100 tons of gold in an effort to fix the price of their future metal production, according to London-based specialty consulting firm Virtual Metals. As gold rallied, the practice fell out of fashion, because it effectively capped earnings of the gold miners at suboptimal levels -- an especially bad thing in a bull market.

Over the past five years, in the attempt to shake off these legacy hedges, some miners entered the bullion market and bought back out-of-the-money positions. Those moves, essentially equivalent to buying gold on the open market, likely helped boost bullion prices.

Now, with only 1,100 tons of hedges remaining and with some positions required by bank lenders to be in place, it's worth considering that any upside left from the dehedging is probably going to be limited.

At the time of publication, Constable was long USAA Precious Metals (USAGX) and Fidelity Select Gold (FSAGX), although positions can change at any time.