Will gold fall further? Five reasons why it will.

April was the month when gold prices drop to two-year lows in a pullback that raised questions over the metal's safe-haven status but also offered an opportunity to buy into the market at lower levels. As a justification of the latter, Russia, Kazakhstan and Azerbaijan increased their gold holdings last month by a cumulative 75% more than they did in March, according to the monthly gold buying report of the International Monetary Fund. The report represents the activities of most central banks and it is a good reference point to gold investors.

Official purchasing has always provided important support for gold prices. According to the World Gold Council, central bank buying represented 11.3% of all gold demand in the first quarter of this year. However, central bank activity did not only do good for prices, it was also an important factor in gold's plunge: the news that Cyprus was considering selling 10 tons of gold from its central bank reserves to raise cash strengthened fears that other indebted European nations, including Italy, which has the world's fourth-largest gold reserves, could follow suit. Investors have been eagerly waiting for the latest IMF report, as they wanted to see whether central banks would have ignored gold as prices fell, or if they would come into the market to buy. Altogether, the IMF data shows central bank holdings rose 972,000 ounces last month and this buying activity signals expectation that gold can hold its value over the long term. Central banks tend to buy slowly and hold gold over long periods rather than moving in and out of the market on a day-to-day basis, which helps buffer spot prices from their activity.

Gold prices shed as much as 17% in April and ended the month 7.5% lower. It is currently trading around $1,390 an ounce, down almost 12% since the start of the year. Could central bank buying help to recover faith in gold? The Wall Street Journal’s Money Beat blog enlists 5 reasons why gold may fall further:

1. The U.S. Federal Reserve could cut stimulus sooner rather than later. Money printing by the Fed has been a major support to gold prices in recent years, reflecting the metal’s traditional appeal as a hedge against currency weakness and inflation at times of heightened liquidity. However, the Fed is now looking at dialing that program back.

“The ever louder discussion at the Fed of tapering back or even ending quantitative easing has undermined gold’s appeal as protection against high inflation,” said Macquarie precious metals analyst Matthew Turner.

2. Investor sentiment is poor. A survey by Credit Suisse based on responses from a poll of around 185 Credit Suisse clients, showed that 60% of investors named gold as the commodity with the worst forecast when compared with copper, crude oil and corn. More than half of respondents expect gold to trade below $1,400 per ounce in a year’s time. Gold currently trades at around $1,380/oz.

Credit Suisse analysts are even more bearish, with head of global commodities research Ric Deverell predicting the price could even fall below $1,000 within five years: “The next big level is going to be about $1,305 per ounce. I expect that it will get to this point quite quickly, I wouldn’t be surprised if this was in the next couple of weeks.”

3. The U.S. dollar is strong. The greenback has been on the  rampage in recent weeks, climbing against a batch of other currencies amid signs that the U.S. economy is recovering and amid expectations that the Fed’s QE may soon come to an end.  Since gold is priced in dollars, a strong greenback dampens its appeal to other currency-holders.

“The U.S. Dollar has really reigned supreme over the course of the past week,” said independent markets commentator Dennis Gartman. “It shall continue to do so as we move forward.”

4. Indian gold demand faces risks. India is traditionally world’s biggest consumer of gold, accounting for over a third of global demand last year. When gold prices slide, subsequent appetite for the metal by price-sensitive Indian buyers often lends a measure of stability to prices, as was the case after gold’s dramatic tumble last month to a more than two-year low at $1,321.50 an ounce. This time around, Indian gold investors may not be so willing to buy, however, said Georgette Boele, an analyst at ABN Amro.

Indian gold demand is seasonal, and the timing of last month’s price drop—just weeks before the Akshaya Tritiya festival on May 13, which is considered one of the most auspicious day to buy gold in the Hindu calendar—boosted India’s demand for gold, noted Ms. Boele.

“As this day is now behind us, demand for gold for wedding ceremonies will ease,” said Ms. Boele. “The next important auspicious days are Vijaya Dashami on October 13, Diwali Night on November 2 of the five-day festival of light, Diwali, and Gudi Pavda, or New Year’s day of the Hindu calendar, on March 31.” That of course could be a case for the bulls come Fall.

5. Further ETF holdings could still be sold.  A major factor in gold’s recent price weakness has been the liquidation of gold-backed exchange-traded funds. According to the World Gold Council, a trade group for gold miners, investor demand for gold fell by 49% year-on-year in the first quarter, largely driven by 177-ton drop gold ETF holdings.

There still remains a large overhang of gold tied up in exchange-traded funds, however, noted ABN Amro. According to the bank, more than 71 million ounces are still held in gold ETF positions, meaning that further liquidation could continue.

“The lower the gold price, the more nervous investors holding these positions will become,” said ABN Amro analyst  Georgette Boele.