Gold swamped by flood of extra money
The price of gold has fallen 30 per cent in the past nine months as the world's central banks have flooded their economies with billions of extra dollars.
The unconventional policies have been part of a wider campaign to breathe life into dying economies.
But they have worked against gold by lighting a fuse under global equity markets. Since November, the S&P 500 has surged 24 per cent while the Dow Jones has jumped a similar amount.
The policies have been controversial. Critics say central bank authorities have no right to fiddle with asset prices.
Lately the US Federal Reserve has been trying to manipulate the public's expectations about the future pace of its bond-buying program by suggesting that it could slow down asset purchases.
And that has helped the gold price to steady and even climb a little in recent weeks.
The gold price has recovered from a low of $US1200 an ounce in late June to about $US1280.
But the overall trend is still downwards, and a long way from its recent high of $US1790 in October.
So does the huge fall in gold since October mean the market has fundamentally changed?
"I think it's just a massive correction in a bull market, because I don't think anything's changed," the head of ETF Securities, Graham Tuckwell, said. "I think people are absolutely sick of the local equity market going sideways and down."
A room full of financial types gathered at the Australian Securities Exchange on Thursday night to celebrate the 10-year anniversary of the creation of the world's first gold exchange-traded product.
In 2003, Mr Tuckwell launched the product on the ASX after traders said they wanted to buy and sell derivatives backed by gold.
Since then the product has been used as a model for similar products on stock exchanges in London and the US.
"What is having the greatest impact on equity markets at the moment and has been for the last couple of years? Central bank policy," Mr Tuckwell said.
"Isn't that crazy? Central bank policy should have no place in setting equity prices, yet we are now in an era where central bank policy is the dominant influence on financial market prices. It's an unreal world. When has that ever happened before?" Central bank policies should be working away quietly in the background, he said.
"But the reason they've come to the fore is because there's a massive problem with the global economy. They shouldn't actually have a seat at the table, but they've got the biggest seat at the table."
Others at the ASX on Thursday night included UBS' global commodity analyst Tom Price, the chief executive of ETF Consulting, Tim Bradbury, and the ASX's general manager of Issuer Services, Max Cunningham.
It was difficult to say what might happen to the gold price in the next 12 months, but in the next three years?
"I think bond prices are going to go back up like crazy," Mr Tuckwell said.
"Thirty-year treasuries have already gone from 1.8 per cent to 2.7 per cent or something like that, that's 90 basis points that have cost you 15 per cent in capital value," he said.
That happened within a period of two or three weeks, but few would realise it: the problem is that not too many people focus on the 30-year treasury bond, he said.
"Two things have forced bond prices up and yields down recently. It's not just central banks buying them because a lot of pension funds are being compelled to go into bonds rather than equities.
"But if interest rates go back up another 100 or 200 basis points, suddenly you're going to destroy 20 or 30 per cent of the value of bond portfolios, " he warned.
"And you've got so many pension funds now that are meant to be liability-driven ... it's just bad news."
This week the Australian government sold $700 million of January 21, 2018, Treasury bonds, according to the Australian Office of Financial Management.
The bonds were sold for a weighted average yield of 3.0150 per cent. The sale attracted bids totalling $2.335 billion, giving a coverage ratio of 3.34.