Frank Holmes, CEO of U.S. Global Investors, however, thinks this kind of volatility in gold is completely normal. "Over the past 10 years it's a non-event for gold to go plus or minus 15%," argues Holmes. "Anytime it's gone up 30% it historically goes through a 15% correction. Well, gold was up 40% in August and it's gone through an 18% correction. That's a normal process, it doesn't mean that it's all over ... its actually healthy."

Holmes thinks that investment demand is alive and well especially with global negative real interest rates as countries try to fight deflation and with the possibility of leaders leveraging Europe's bailout fund to 2 trillion euros. "If you take a look at the significant of fiscal policy, they refuse to make changes so therefore they are going to devalue their currency."

Klapwijk also says that the gold trade isn't broken. "I don't think the recent decline we have seen has broken investor sentiment ... I don't think most people think a definitive solution for Europe can be found so easily ... we are probably going to get a savage turn for the worst at some point and I think that that type of thinking still permeates gold market."

Klapwijk who is currently in Hong Kong says that physical buying is alive and well, that demand for 24 karat bars and jewelry was brisk. Mark O'Byrne, executive director at GoldCore, said that premiums on gold bars in Hong Kong and Singapore are at $2 and $2.50, respectively. "Vietnamese premiums were $27.79 over spot gold of $1,662.20 and Shanghai gold closed at a premium of $10.15 to world gold of $1,652.05."

Holmes also points to robust physical demand - what he calls the love trade. "The key there is rising GDP per capita in emerging market countries." Holmes argues that consumer spending is up 18% year over year in China, but that it only accounts for 30% of growth domestic product versus 70% for North America, which means China has a long way to go and will keep spending.

Gold mining stocks were slaughtered Wednesday. Kinross Gold ( KGC) dropped 7% to $13.55 while Yamana Gold ( AUY) shed 5.44% to $14.25. Other gold stocks, Agnico-Eagle ( AEM) and Randgold Resources ( GOLD) were trading lower at $46.15 and $98.90, respectively.

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-- Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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