Bull vs. Bear: Will gold hit $500?

At $991.60 an ounce, gold is retreating from the approach it took a few weeks ago to its March 2008 record price of $1,032.70 an ounce. I posted earlier this week that the Fed's plan to take $1 trillion in cash from the financial system could be a sell signal.

This prompted a reader who holds all his wealth in gold to challenge my thinking in a series of e-mail exchanges. I concluded that in order to justify his asset allocation, this fellow must cling to a conspiracy theory the survival of which depends on ignoring inconvenient facts.

His case for gold is that the world will collapse unless the Fed keeps pumping limitless amounts of liquidity into the world financial system. He believes that the entire story of the Fed removing $1 trillion from the financial system was a "plant for consumption on the eve of the G-20 summit. So, they type up a nice little piece of fiction."