That scrap supply high is actually a 27% rise from 2008, according to Kitco. "So long as prices remain above $1,000-$1,100 we will continue to see a river of secondary gold actually starting to compete with mine production," says Jon Nadler, a Kitco analyst.

The real reason for the drop: stabilization in other markets

That's not to predict an immediate gold crash. The "fear premium" it commands as a store of value during uncertain financial times could support higher prices indefinitely.

As traders sort out the effects of Europe's $1 trillion bailout and whether inflation or deflation creep up in the U.S., investors will probably continue parking in gold as long as they can. Gold has slumped just a bit as a sense of some stability has returned to the markets in Europe.

But some of the smart money is betting that gold keeps rising. Hedge funds and other big speculative traders boosted their gold bets by 2% last week, according to data from the U.S. Commodity Futures Trading Commission.

The thing is, no one knows how long their bets are for. Fast money from hedge funds and speculators can get out while prices are high. In fact, one of the prevailing themes among speculators seems to be: ride the momentum while it lasts. Often times their ownership of gold lies in futures, never even taking physical delivery of the yellow stuff.