ECB president Mario Draghi has now made it clear to investors that the ECB will not monetize the debt of troubled EU nations. The decision not to monetize debt in a substantial way is a game changer for gold.
As the idea of a new stronger fiscal agreement between EU nations has emerged, many market participants expected that this would also mean increased bond purchases by the ECB. Draghi has now shot down any hopes of significant bond buying going forward, he characterized the bond buying program as "neither eternal nor infinite." This compares with earlier comments where Draghi implied that a closer fiscal union could allow the ECB to do more. Draghi said, "A new fiscal compact is definitely the most important element to start restoring credibility... Other elements might follow, but the sequencing matters."
The change in stance now means that even a fiscal union may not be enough to save Europe. If the fiscal union fails to do enough to save Europe, the consequences for gold will be significant. Deflation will set in, and gold will go down. As discussed here, gold is not a safe place to be in a deflationary environment.
If the fiscal union does prove enough to save the EU it will not be bullish for gold. The fiscal union will impose harsh spending cuts on most EU nations. These spending cuts will also lead to deflation as discussed here.
The bottom line is that the ECB has just removed the single most bullish outcome of the eurozone crisis for gold: massive printing of euros. For this reason, gold is to be sold until we either get QE3 from the Fed or a change in policy for the ECB.