Gold concluded 2011 with a 1.7 percent rally on the last trading day, bringing the yearly gain to 10.2 percent and extending its bull run to 11 years.

The most active New York gold contract for February delivery rallied 25.9 U.S. dollars on Dec. 30, to 1,566.8 dollars an ounce.

However, worries over the bullion's prospects intensified with recent slumps amid increasing economic uncertainties around the world.

HEADING FOR 2,000 DOLLARS

New York gold rushed into 2011 with plenty of momentum, underpinned by so-called safe-haven demands triggered by turmoil in West Asia and North Africa as well as the longstanding European debt crisis.

"Facing worldwide troubles, people tend to buy gold to protect their wealth out of intuition," a precious metal trader in Chicago said.

Moreover, the hikes in the price of crude oil triggered by worries over chaos in oil-producing countries further intensified inflationary fears during the year and thus gave additional impetus to gold's rally.

As the year progressed, the bullion's prices topped the psychological marks of 1,400 dollars, 1,500 dollars and 1,600 dollars an ounce. In August, the U.S. debt trouble helped the metal march into record territory, passing 1,700 dollars and then 1,800 dollars an ounce.

"The market was crazy. You cannot imagine the world's largest economy is having problems paying back its debt, so huge amounts of funds rushed into the gold market just for protection," said Mike Daley, a senior gold analyst with PFGBest Group.

Financial institutions, including Goldman Sachs and Citigroup, vied with each to raise their forecasts for the gold price. "It's an embarrassment to place your target price below 2,000 dollars," a gold trader said at the time.

JP Morgan even hiked its estimates by a whopping 39 percent, boldly predicting the precious metal would reach at least 2,500 dollars an ounce by the end of 2011.

STOPPING AT 1,900 MARK

But the clamor for gold soon ran out of steam.

"September 6 was an important day for gold, as it rose past the 1,900 dollars mark, which is really exiting for the market, but, unfortunately, it failed to sustain that level for settlement," Daley said. "From then on, the doom of a correction arrived."

The four consecutive trading days ending Sept. 26 were a "nightmare" for Daley, as gold lost more than 200 dollars, shedding 101.9 dollars on Sept. 23 alone, the biggest one-day slump in the past five years.

The sharp drops shattered the earlier optimism and were followed by dramatic fluctuations in the third quarter.

"Too much speculative funds, accumulated in earlier trading, opted to flee the market on higher prices," said Ira Epstein, a senior trader with Linn Group, adding the collapse of stocks worldwide also tightened market liquidity, especially on the European market, and prompted fund managers to cash in their gold holdings, one of the few profitable investments at that time.

"The appeal of the safe-haven is weakening as cash is king now. Though the bad news from Ireland, Spain and Italy is in the headlines every day, nobody wants to buy gold, and gold is more like equities, as stocks rise, gold rises and when stocks go down, gold goes down," Daley said.

To make things worse, the deteriorating European debt problem helped drive down the euro against the dollar and a stronger dollar dampened the appeal of commodities that are priced in dollars, according to Epstein.

The dollar index, which measures the value of the dollar against six other currencies, including the euro, has risen more than 5 percent since the beginning of September.

"CRYSTAL IS CLOUDED"

The bleak year-end sentiment has no doubt raised concerns that gold's bull run may be over.

But Daley is still confident. "I believe there is more upside potential than the downside and gold could reach 2,100 dollar per ounce, and that may come earlier in 2012."

Daley said safe-haven demands would come back when investors get tired of the EU debt crisis. "Just look at the 2008 financial crisis. People always seek gold as their last resort," he said.

Moreover, Daley says the U.S. Federal Reserve is set to carry out a new round of quantitative easing, or QE3, to revive the economy, which will be a major boost for gold. "As you print more paper currency, it's worth less and a weaker dollar is always bullish news for gold," he said.

"You should look at the long-term reward, not the short (-term) one. When gold rose to 500, people said there was a bubble, when it got to 1,000, they said that's too high, but gold now is at 1,700 dollars, 1,800 dollars, they should know, the market is always right," Daley said.

On physical buying, Fabio Fois, a European economist at Barclays Capital, recently noted central banks worldwide could buy 325 tons of gold in total. In addition, investment demand from China and India would offer strong support for the metal. Barclays Capital predicts the gold price will reach 2,000 dollars an ounce on average in 2012.

This positive forecast was echoed by Bank of America Merrill Lynch, which recently kept its 12-month gold price forecast at 2,000 dollars an ounce, saying the correction "was not necessarily driven by a broad-based reassessment of fundamentals."

However, the market has not come to an overwhelming consensus.

"Although I'm not a long-term bear, I think the story of gold is over for now. Gold is unattractive to investors, compared with U.S. bonds or dollars," Linn Group's Epstein said.

"The only issue that could help gold is inflation, but it's not a good time for inflation. There is no big inflation problem in developed economies, so investors are leaving gold," he said.

As one trader said: "Both bad news and good news stand behind gold, so the crystal is clouded."