Gold tumbled to a three-month low just above $1,600 per ounce last week and has been stuck in a range between $1,600 and $1,800 for seven months.
Last week's wobble was due to the minutes of the Federal Reserve's latest meeting, signalling no further money printing. Meanwhile, gold jewellers in India, the biggest jewellery market, closed in protest against an increase in the government's import tariff, which could dent demand.
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Indeed, inflows into gold-backed exchange-traded funds have risen, notes Morgan Stanley. And the short-term investors' latest worry that there will be no more quantitative easing looks overblown. Given the scope for further defaults and bank losses in Europe, and the fragile state of most major economies, further money printing can hardly be ruled out just yet.
But even without it, "the Fed is still ultra-accommodative", says HSBC's James Steel. With inflation creeping up, real interest rates are negative and falling.
Moreover, the danger of inflation eventually surging as all the printed money begins to move around the economy more quickly as the hangover from the burst credit bubble begins to fade has hardly gone away. Central banks may also be tempted to let it rise in order to erode our towering debts. "The only way out of this banking crisis will be inflation in the end," says Peter Hambro of Petropavlovsk.
Not only is the global monetary and financial system still far from returning to normal, but gold supply is constrained too, says Ambrose Evans-Pritchard in The Daily Telegraph. World output has been stuck for the last ten years at around 2,700 tonnes a year, despite a quadrupling of investment. Gold has risen more than sixfold from its 2001 low, and "the golden age is not over" yet.
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