Operation Twist, if undertaken by the Fed, will drive interest rates on longer bonds to new lows and should cause an immediate spike up in gold prices. Operation Twist would consist of the Fed selling short term maturity assets and purchasing longer term assets in an effort to lower long term interest rates. This would not change the Fed's balance sheet so it is suppose to give political cover from criticism but it won't, particularly if it is effective: The criticism is political flack designed to prevent any effective action until after the 2012 election so Ben will still get a beating.
Gold appears to react to interest rates; if fact, gold seems to vary in value like a long treasury bond. There is a quite a bit of economic theory that supports this though it has been lost to most of us until recently mentioned by Paul Krugman in a couple of now infamous blogs. The easiest way to to illustrate this is by charting gold against the risk-free rate of the long inflation protected treasury bond. As you see from the chart below, once Lehman Brothers brought the idea of default risk to the forefront in 2008, gold pricing acted inversely with the drop in real interest rates (the interest rate scale on the right is inverted.)
click to enlarge
Doing a close up the action of gold and interest rates for the last few weeks makes it even clearer that there is a strong relationship. The chart below is through last Friday.
It's hard to imagine that long real interest rates will get that much lower as they reached 0.57% on September 2 just before gold peaked at $1895 per ounce. However, the Fed has a lot of shorter-term treasuries on its books so there should be at least a small drop in interest rates so perhaps gold will spike to $2000 or even reach the mythical $2200 to $2400 per ounce that was the inflation adjusted peak in the last bubble.
Once this spike is in, there doesn't appear to be anything else to push up the price of gold so prudent investors will sell while interest rates remain depressed and gold prices are high.
If you feel that you want to hold onto your gold because all the money manipulation is going to cause inflation, you need to ask yourself: When will the inflation occur? We're almost certainly going into a recession so the prospect of inflation is being pushed out. The most likely result for gold is a drop as interest rates return to more normal levels, followed by another peak if inflation causes real interest rates to go negative.