Gold prices have seen little support from physical demand, with weak uptake in India and China. Picture / AP
The financial crisis is easy to spot on graphs. Often it's a great crater on a steadily climbing slope. For gold prices, however, it's a sheer mountain face that peaks in 2011.
Gold prices soared in the aftermath of the financial crisis to a record high of US$1,900 ($2025) per troy ounce as the US Federal Reserve loosened monetary policy to kick-start the US economy's stuttering recovery, sending interest rates as low as 0.25 per cent.
But central banks are finally taking Western economies off life support. The US dollar, another key driver of gold's price, is also showing tentative signs of recovery, while the new kid on the block, bitcoin, has stoked concerns that demand for the precious metal as a safe haven could begin to dwindle.
Gold prices have fallen by up to 8 per cent in just three months, bottoming out at the start of December below US$1,250 per ounce, as the Fed prepared the markets for the third rate hike of 2017.
The Fed's monetary policy continues to be the main catalyst for gold prices, and they will likely drift lower in 2018 as the central bank is in the middle of a policy tightening cycle, says SP Angel analyst Sergey Raevskiy.
Gold is sensitive to movements at the Fed for three main reasons. Firstly, interest rate hikes boost the dollar and so push down gold's relative value.
Secondly, most investors in physical gold need to pay for secure storage.
"Unlike stocks and shares where you don't have to worry about it, gold actually costs to hold. The higher the interest rate goes in the States, the more it costs to hold gold," says David Govett, Marex Spectron's manager of precious metals, who estimates that the cost has doubled from about US4c a day per ounce to US8c or US9c, in a year.
Finally, other investments start to become more attractive propositions for investors when rates begin to climb.
"The banks start to improve their deposit rates for savers, so instead of saying 'I've put my money into gold because I'm getting zero in my bank account', suddenly you're going 'the bank is paying 1-2 per cent, I'll put some money back into the bank account and take it out of a riskier investment'," Govett says.
Prices have also seen little support from physical demand, Raevskiy argues, with weak uptake in India and China, the world's two largest gold markets.
However, climbing production costs have provided a floor that should ensure prices won't plunge to pre-crisis levels.
"Before the crisis, the annual production level for gold was around US$500 an ounce but nowadays you're talking about around US$1,000 an ounce," Govett says.
However, the catalysts to send gold soaring are few and far between.
A clumsy step on the international stage by Donald Trump could send investors scurrying back to traditional safe haven assets such as gold.
But while markets initially took fright at rising tensions between the US President and Kim Jong-un this summer, each bout of chest-beating has elicited a weaker reaction.
"It seems nowadays the markets have an extremely short memory. Now if North Korea has fired its latest weapon or it says this is tantamount to a declaration of war, gold doesn't move a single dollar," says Govett.
Some analysts have partly pinned the recent dip in gold's price on falling demand caused by the emergence of cryptocurrencies such as bitcoin.
Ned Naylor-Leyland, Old Mutual Gold & Silver Fund manager, describes bitcoin as "explicitly designed to be digital gold", and has been buying cryptocurrencies since April, long before the recent surge in demand. Up to 5 per cent of his war chest can be allocated to bitcoin and other digital currencies.
However, bitcoin's astronomical price rise this year, and wild volatility, has weakened its credentials as a store of wealth in turbulent times. Gold analysts also note that the yellow metal is a vastly larger and more liquid market: Bitcoin has capitalisation of about US$230bn, while the value of all the gold ever mined is nearer US$8 trillion.
Govett can see a limited crossover appeal but believes any impact is likely to be small.
"Gold is one of those markets that attracts a slightly lemming-like following. The lower it goes, people get disillusioned with it and it's hard to bring it back. The higher it goes, everyone jumps on the bandwagon. A little bit like bitcoin," he says.
"It wouldn't surprise me at all if people are pulling a bit of money out of gold and putting a bit into bitcoin."
Goldman Sachs has insisted that there is no evidence that bitcoin's incredible rise this year has prompted an exit from gold.
However, analysts at JP Morgan told clients this month that the launch of bitcoin futures contracts on major exchanges has the potential to add legitimacy to it as an emerging asset class and increase its appeal to investors, which could make it useful "as a store of wealth".
Lukman Otunuga, FXTM analyst, argues that gold and bitcoin cater for investors with very different mindsets but its "decentralised nature, fixed supply, and transportability could have some appeal for gold investors".
However, he adds: "Although the rapid rise in popularity of cryptocurrencies has encouraged market players to target bitcoin in times of uncertainty, there are other factors behind gold's recent dip. One of the culprits behind gold's decline could be the renewed sense of optimism over US tax reforms, which not only supported the dollar, but also stimulated risk sentiment."
With rising rates making other investments more alluring and digital currencies taking their first steps into the financial mainstream, it seems likely to be some time before gold regains its market shine.