For years, investors known as gold bugs snapped up the metal and socked it away, betting that a colossal economic crisis would one day slam financial markets and send gold prices through the roof.
For many investors, that grim scenario is in full swing, except for one thing: After briefly hitting $1,000 an ounce for the first time in March, gold has fallen into a rut and shows no sign of budging anytime soon.
Gold's failure to flourish despite broad financial carnage has disappointed many of the metal's champions. Others say it's simply in a lull and is ripe for another big surge. But most gold buyers agree that the metal's lackluster performance lately has been surprising.
"It's been a puzzle for most of us," said Geoff Farnham of Venice, Calif. who inherited some gold holdings and recently began buying gold coins as "insurance."
"In hard times, gold is a good thing to have," the retired software developer said. "Knowing that there aren't a lot of gold coins out there to buy, seeing the price continue to drop has been curious."
It's also been punishing for investment portfolios. Since soaring to an all-time high of $1,033.39 an ounce on March 17, gold has plummeted 30 percent. Gold for December delivery on Monday rose $8.60 to settle at $726.80 — roughly the same level where it traded a year ago.
So what happened? As the financial crisis pummels financial markets around the globe, hedge funds and other large investors who drove gold to dizzying heights earlier this year are now racing to unwind those positions to raise cash and cover huge losses. The massive deleveraging has pounded other commodities from crude oil to corn to copper.
"Gold is being pulled down by indiscriminate selling of virtually every asset," said Jeffrey Nichols, managing director at New York-based American Precious Metals Advisors. "You could call it collateral damage."
Instead of gold, investors are pouring money into the newest safe-haven asset: cash. That has pushed the dollar to multiyear highs against the euro and the pound, hurting demand for gold among investors who buy the metal as a safe-haven against inflation.
With economists now warning that a world economic slowdown could bring about deflation, or a sustained period of falling prices, gold analysts say it's unclear how the metal will respond.
"Gold hasn't been tested in a true deflationary crisis so we don't what will happen to prices," said Jon Nadler, precious metals analyst with Kitco Bullion Dealers Montreal.
Another question is whether demand for gold jewelry and luxury items will pick back up, which could boost prices. The holiday season is traditionally the busiest season for gold buying in the U.S., Asia and elsewhere, but analysts expect the global economic slowdown to hurt sales.
"It doesn't look like it will be a good Christmas for jewelers," Nadler said. "When you don't have a job and bonuses and Christmas parties are being canceled, the mindset is toward frugality and gold takes a hit from that."
Still, not everyone is selling gold.
Mark Albarian, CEO of Goldline International, Inc., a Santa Monica, Calif.-based gold dealer, said sales at his firm tripled in October compared to August — a sign that individual investors aren't joining hedge funds in the rush to sell gold.
"Our clients overall seem to be very happy with their gold," Albarian said, noting that gold is still outperforming most assets. "Gold may be back down to where it was last year. But our houses have dropped 10 to 30 percent during that time and stocks are way down. So gold has held up rather well."
Looking ahead, some gold watchers are betting for another big climb. They argue the dollar's recent rally can't last as long as the government has to pay for a string of mammoth financial bailouts by either printing money or raising taxes — both inflationary weights that should weigh on the greenback and be bullish for gold.
"Fundamentals will re-establish themselves as the driver of the gold market, and we believe we'll see $1,250 gold during this period," Donald Doyle, chairman and CEO of New Orleans-based precious metals dealer Blanchard and Co., said in statement Monday.
In the meantime, Farnham said he's hanging on to his gold. He said he's hopeful the economy will improve and he won't need to cash in his insurance, but with all the uncertainty, he's not ruling out that he might have to.
"I think a lot of it will depend on world events," he said, citing conflicts in the Middle East and threats to world resources like oil. "There's potential for a lot of crisis out there, and crisis drives up gold."
At least, that's the theory.