LAUNCESTON, Australia, Jan 14 (Reuters) – The three legs that supported gold’s extended rally from just after the 2008 global recession until the all-time peak in 2011 may be making something of a comeback this year.
This is sparking hopes that the precious metal may finally break out of a fairly narrow five-year range, although it’s still far from certain that the dynamics for a sustained rally are entrenched.
The 2008-11 rally that saw spot gold almost triple in value to reach a record of $1,920.30 an ounce was built on three pillars, namely strong physical demand from top buyers China and India, robust central bank purchases, and appetite for a safe haven investment amid the fallout from the global recession.
With all three of these factors working in concert, gold posted solid gains before likely entering a bubble market, with hot money chasing a trend that was fuelled by the usual outlandish forecasts of a never-ending spectacular rally.
However, while central bank buying remained solid, the two other legs of gold’s rally, namely the largely Western-driven investment buying and Indian and Chinese buying moderated after the September 2011 record. The recovery in the global economy limited the fear-appeal of gold, while the high prices stymied physical demand in India and China.