I suggest you take a look at the gold chart. Gold went from around $420 in 2005Q3 to nearly $730 by May 2006 with little correction. A correction is thus not unexpected and is considered healthy.

Re: inflation. Take a look at CPI numbers and compare them to gold prices in the 1970s’ gold bull market (bottom chart on http://www.zealllc.com/2006/rgold2.htm). A cyclical bear within a secular bull was seen in 1975 thru 1976, corresponding to a period of time when inflation went down.

If you believe that inflation is already under control, then there are strong arguments to exit the market. But if you believe it’s just taking a breather, then be prepare to jump back into the market.