A recent report from the Royal Bank of Canada's Capital Markets division draws some parallels between the current market and the ETF-fueled gold boom of 2005-2008, predicting a new bull market.
Analysts Jonathan Guy and Dan Rollins note that gold prices doubled in that period from $450 to $900, fueled by the emergence of gold exchange-traded funds (ETFs). ETFs such as the SPDR fund, still the world's largest, led to a jump in demand that snowballed among retail investors.
Conversely, the huge outflows from gold ETFs in 2013 has been attributed as a large reason for gold's 28% loss that year. (ed. note: India's gold import restrictions played a part as well.) While ETFs have started buying again in 2014, it isn't at the same rate as seven years ago.
What Guy and Rollins see as the catalyst for the next bull market in gold is the physical demand for gold from China. In fact, it could be said that ETFs and China have switched places in the gold market. Where gold demand in China was almost non-existent in 2005, last year saw China import more than 1200 metric tons just through Hong Kong.
The report also takes a stab at estimating Chinese central bank gold reserves, suggesting that it has almost tripled to between 2,700 and 3,000 metric tons. It also believes that the increasing standard of living and urbanization of the Chinese population will lead to even larger gold demand, that will hold up even in the face of rising prices.
Read a detailed report on the report at Mineweb.