Gold is tangible, easy to hide, worth the same anywhere in the world and almost indestructible. It is a quasi-currency that this week has charmed and alarmed with its fiercest price fluctuations in 30 years. "It's certainly gone bonkers the last few days but I don't get too excited," said Melbourne-based Susan Close, head of Surbiton Associates Pty Ltd and a professional gold watcher.
"There are a whole host of reasons that influence the gold price but it's impossible to predict precisely what's happening because a lot of it is sentiment, panic." Two years ago, when gold was on its way to a record high of 1,888 US dollars an ounce, shopping centre kiosks were doing a brisk business in turning bottom-drawer jewellery into ready cash.
If you waited, thinking the global financial crisis would propel the world's favourite store of wealth even higher, you missed your chance. Gold has now dipped below 1,500 dollars an ounce, around one-quarter below the record set in August 2011. But while some analysts reckon gold has lost its safe-haven aura and is heading toward 1,000 dollars an ounce, others see the week's gyrations as a buying opportunity not to be missed.
"If you've ever thought about buying gold, but never quite got around to it, in the space of a week, the market just gave you three huge reasons to back up the truck," Alex Cowie told readers of his Diggers & Drillers mining industry newsletter. He sees the gold price at rock bottom, driven below the cost of production by speculators and due for a rebound. "It's hard to believe that a 24-hour, near 10 percent, move in any commodity could ever be natural," he wrote. "Who ever really knows what goes on behind the scenes of this incredibly opaque market?"
Although annual gold production is relatively stable at 2,500 tons and demand is rising as affluence spreads in India, China and other big markets, the gold price is tugged by many factors. Central banks like China's have tons of bullion they could unload - or just hint at unloading. On a single day in November 1997, Australia sold two-thirds of its stockpile. In 1999, when central banks were selling gold or suggesting they would, the metal fell to 251 dollars an ounce.
Individuals also have substantial holdings that they too can shift the market with. Australia dreamed up exchange-traded shares in 2003. That gives investors a chance to hold scrip backed by physical gold. Then came futures contracts and other derivatives not backed by physical gold that further clouded the market. "The vast proportion of the trade is speculative - derivatives, futures, whatever," Close said. "A lot of what's driving the market is the derivatives side of it."
While agreeing with Cowie that the market is opaque, Close insisted that supply is not a major determinant in the market. The price does not track production. In Australia, the world's second-largest producer after China, gold production peaked at 318 tons in 1997. In the United States and South Africa, output is also flat.
Newcrest Mining is Australia's biggest producer. Its share price has fallen by more than 5 per cent in four of the last 12 trading days. In two years, its share price has halved in a movement unrelated to output or prospects. Close is confident that gold will bounce back because demand for gold adornments is eternal and it is unbeatable as a handy store of value. "They say gold has had its day, but what do you replace it with?" she said. "All the paper money in the world, all the derivatives that are exciting, but when you want something physical, there aren't too many things that compare with it."