Yesterday, gold hit a nominal all-time high on sovereign debt concerns. Last week, however, the Financial Times noted the decline in gold exchange-traded fund assets and net long positions in gold futures; some analysts believe these are signs that demand for gold is finally drying up. Are we witnessing the last gasp of the bulls in gold's remarkable 10-year run? One high-profile gold market participant isn't on board with that conclusion.

Less gold on exchanges = more in the vault
Andrew Maguire -- the "silver short" whistleblower -- believes ETF asset declines are a positive indicator for gold. This is his argument: Physical gold is migrating from Western exchanges to Eastern vaults, as Eastern investors are buying up ETF shares and redeeming them against the physical metal. According to a post on the Financial Times' Alphaville blog, this is what Maguire told King World News:

"Lots of people say, well look at the [iShares Silver Trust (NYSE: SLV)], look at the [SPDR Gold Shares (NYSE: GLD)] -- look at how people are capitulating. Look how the gold and silver market is being sold off. Wrong. ... If you want to buy cheap gold and silver, what do you do? You simply look for any above ground stores, i.e. SLV or GLD and you go and buy 50,000 shares of SLV, for example, and then you literally redeem them for a Comex price [the Comex commodities exchange is part of the CME Group (NYSE: CME)]. Where else can you get above ground silver or discounted paper prices in size? A lot of analysts have been saying 'look how negative this is' when in fact it's the exact opposite. That metal is moving into some very strong hands and disappearing into vaults in the eastern hemisphere."

There's more where that came from
On top of that, Maguire thinks the Pan Asia Gold Exchange, which has an agreement with the Agricultural Bank of China, will be a "game-changer":

The Agricultural Bank of China has over 320 million retail customers and 2.7 million corporate customers. ... Chinese bank customers will for the first time have ease of access to 10 ounce gold contracts in Renminbi directly from their bank accounts and with the click of a mouse. ... If just 1% of their customers bought a single 10 ounce contract, that would equate to 1,000 tons of physical gold being drawn down.

If that came to pass, it would indeed be a game-changer. For comparison, the most popular gold ETF, SPDR Gold Shares currently has 1,205 tonnes of gold held in trust. In 2010, the top 10 gold miners produced roughly 1,000 tons of gold, with the largest, Barrick Gold (NYSE: ABX), representing a quarter of the total (if you're interested in gold stocks, Christopher Barker has identified the top 10 gold stocks for new money).

Lining up in the streets
There is a precedent that suggests the Chinese have a hearty appetite for gold once they're given the opportunity to own it. On New Year's Eve in 1979, The Wall Street Journal reported that there were lines spanning several blocks at nearly every branch of a U.K. bank that had received Hong Kong's authorization to issue individuals with applications to own gold. The USSR had invaded Afghanistan only a few days earlier, but geopolitical turmoil may not have been locals' primary motivation to own gold.

The following month, The Economist noted in a prophetic article "Never Buy Gold on the End of the World" that "the top prices for gold have recently been made in Hong Kong by the local Chinese, who are used to a casino atmosphere in the stock market and find metals mania as much fun as mah-jong." In the first three weeks of January, gold shot up by two-thirds, to achieve an all-time high of $850 per ounce (equivalent to $2,469 per ounce today); by the end of the month, it had fallen by a heart-wrenching 25% from that level.

Room to run
In my opinion, the current gold rally has plenty of room to run (despite the fact that it is already substantially overpriced). To point out just one bullish factor for gold: The heart palpitations the eurozone sovereign debt crisis is sending through global markets aren't over; in fact, they could turn into a full cardiac arrest for the currency union. My sense is that things are likely to get worse before they get better.

More demand, more volatility
Nevertheless, gold bulls should be careful about assigning too much weight to the "China demand" argument. Chinese retail investors, who have an enormous appetite for speculation, are unlikely to be the "very strong hands" that would put a firm floor on gold prices. "Fickle hands" is a lot closer to the mark. Investors who own bullion through products such as the SPDR Gold Trust or the Central Fund of Canada (NYSE: CEF) should be prepared to experience higher volatility.

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Fool contributor Alex Dumortier holds no position in any company mentioned. Click here to see his holdings and a short bio. You can follow him on Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.