When will the gold decline stop?

Is there a good reason to hold gold? The markets does not seem to think so. Money continued to be move out of the ETF sector by investors. The flight of the retail to the tune of $38 billion. Any buying switch to China and India may not be enough to stop the retail herd. Gold was down 28% which was almost the exact opposite of the S&P 500. It was first annual drop since 2000 and the worst annual move since 1981 when the Fed broke the high US inflation. So what was the reason for the deep decline?

There is no inflation. All major countries are the general 2% target rates. Emerging market inflation which is generally higher than the G7 is also below expectations with just a few exceptions. There is greater fear of deflation even after years of quantitative easing. Additionally, real rates have risen from their lows. Gold does better in a falling real rate environment. The same issue can be applied to commodities in general. 

It is hard for the retail investor to hold gold with a performance gap of over 50% versus a stock market index. The desire for diversification is just not present. At $1200 per ounce, the market has fallen over $700 this year. Some could say that there is a good reason to now hold gold, but if we look at selected periods over the last three decades, gold can be rangebound for years. There is little threat of a financial crisis at this point. Rates, per forward guidance, should be rangebound. The inflation protection argument looks weak. There could be a more than 50% increase in inflation which could still keep it under 2%. Hence, the inflation story is unlikely to translate to new buying. Many investors are unlikely to move back to gold after suffering such large loses. The chance of a wrong bounce is low. 

It could just be the case that the latest run up in gold was a fad fueled by easy access through ETF's. Financial innovation through new products does not mean that everyone will be a winner.