Is gold's bull run over?

Gold hit a record of $1,920 an ounce in September 2011. Since then, it has drifted between $1,600-$1,800. So has it peaked? And if further gains are in store, what will trigger them?

The overall backdrop remains bullish. Gold remains a hedge against turmoil and inflation, and we could well need the insurance. There are plenty of potential geopolitical triggers for a rush into gold, including wars in the Middle East and the ongoing American budget crisis. The euro crisis could also flare up at any time; the elections in Italy and political turmoil in Spain are additional flashpoints.

But the main issue is that central banks have engaged in "massive money printing" and inflation-adjusted interest rates are negative: "These are the best possible conditions for a gold rally," as Fred Hickey of the High-Tech Strategist, a newsletter, points out. All this should fuel concern about high eventual inflation (usually defined as 5%-plus), as central banks have never been much good at siphoning off liquidity from the system as recoveries set in.

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A closely related point is that money printing is weakening currencies across the world, and this burnishes gold's appeal as a store of value: it is a traditional currency that can't be debased by printing. Central banks have become net buyers of gold in recent years and are repatriating their holdings an "implicit acknowledgement" of gold's "evolution as a legitimate form of money", says Deutsche Bank. As for that catalyst, it may have arrived.

Longview Economics, a consultancy, notes that the driver of investment flows and the gold price has been the expansion of the US Federal Reserve's balance sheet (as it buys assets with printed money). The sideways drift in the gold price has coincided with the period since the end of the second round of quantitative easing (QE2) in mid-2011.

Since last autumn the Fed has embarked on QE3, but only since January 2013 have overall purchases accelerated to $85bn a month. That's a similar pace to QE1 and QE2, implying a rally in the gold price. Even if this proves wrong, however, and gold does not start to move until inflation begins to take off, as Bill Gross of Pimco expects, we would still hang on to the yellow metal. The path of least resistance is still up.