There hasn’t been a shortage of gold skeptics during the 10-year run-up in gold prices that started in 2001. That’s probably a good thing, though. It’s only when everyone is convinced that a commodity is heading higher that the risk of a dramatic correction in prices sets in.

Still, at least one portfolio manager is sounding the warning bell on gold prices. Charles Lemonides of New York’s ValueWorks, LLC, recently appeared on Canada’s Business News Network arguing that if gold dips below its March 15 lows, we could be in for a steep sell-off that might see gold prices tumble to $400 an ounce.

“I think there’s a lot to be said for what’s happening in the gold market and the commodities markets setting up for a classic collapse,” he said on Wednesday, according to IBTimes. “Once that correction starts it becomes very fast and very powerful and is very dangerous for investors.”

A swift fall to $400 an ounce wouldn’t so much be a “correction” as a “wholesale slaughter,” but Lemonides argues that gold producers are rapidly building up capacity that will soon flood the markets with cheap gold. That could drive down demand and – in a sort of trading echo chamber – push prices even lower as scared investors jump ship.

Still, a fast and furious fall to $400 an ounce sounds hyperbolic to say the least. But every investor should always look toward worst-case scenarios before picking a potential investment. Here are a few things that could prompt a gold price crash:

Changes in Fed policy. It’s no secret that one of the biggest drivers for gold prices right now is the loose monetary policy that the Federal Reserve has embraced. With interest rates near zero and quantitative easing in full force, there isn’t just a threat of inflation in the future; it’s almost a sure thing. Investors eager to protect their capital in an inflationary environment are moving into gold out of the hopes of protecting their assets against debasement of the dollar. If the Fed were to suddenly and unexpectedly announce a change in policy (an interest rate hike, or an early end to QE2, for example), gold prices would likely fall in the near-term.

A surging dollar. One of the more curious outcomes during the height of the housing market crash and financial crisis in 2008 was the surge in the value of the dollar – even as the Fed took extraordinary measures to inject more liquidity into the economy. The dollar climbed as investors sold off their stocks, swapped their currency for greenbacks and ditched just about every other form of investment they were holding. The net effect was a 28 percent plunge in gold prices between March and November of 2008 from more than $1,000 per ounce to $720 per ounce.

A brand new gold rush. The third and least likely scenario (in my mind) that could cause a rapid decline in gold prices is precisely what Lemonides describes: a sudden surge in gold supplies. Excess supply could push down prices quickly and trigger a panicked sell-off in gold. I just don’t see that much supply entering the market in the short-term. Gold prices have been rising for a decade and that gives gold producers enormous incentive to get their product to market. They’ve been working hard to increase output for years, and they’ll continue to do so. It would take a new world-class deposit that’s buried under just a few feet of soil in an easily-accessible, politically-stable region to spark a large sell-off in gold. More than likely, though, it’d just spark a rush into the shares of the company that owns rights to that deposit.

That’s not to say I take the chances of a gold sell-off lightly. If sentiment turns against precious metals, it will do so quickly, but I can’t see sentiment changing in the near future – particularly as rumors of QE3 hang like a cloud over the future of the dollar. And, as investors grow increasingly wary of the dollar’s prospects, it becomes more unlikely that’ll we see a repeat rush into the dollar like we saw in 2008 should another Black Swan swoop down on the market.

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