Yellow metal set to regain its glitter in topsy-turvy market

The Shanghai Gold Exchange is to launch the yuan-denominated gold index this year, predicted to increase China's gold pricing power. [Photo provided to China Daily]

My infatuation with gold can be traced back to a long time ago.

The description of "yellow, glittering, precious gold", which I happened to read in William Shakespeare's Timon of Athens in my college years in the late 1980s, is engraved in my mind. "Thus much of this will make black white, foul fair, wrong right, base noble, old young, coward valiant" - these words have been powerful enough to influence my life as well as investment decisions, up till now.

I have tried to live by the adage that silence is golden. Not surprisingly, I have also invested in gold, although indirectly. For many years I have been using a paper-gold account offered by my bank, which allows me to trade in the yellow metal without the delivery of its physical form.

Yet my affinity with gold did not make me any richer. After making a small profit when the gold price was on the way to its peak in 2011 at $1,920 per ounce, I have been losing money ever since. The past quarter was the sixth in a row that saw gold prices decline, the longest period of downward spiral since 1984.

Now gold hovers at around $1,100, a level nearly 10 percent lower than a year before, or a 45 percent plunge from its highest point. That is a far cry from the prediction Bank of America Merrill Lynch made less than four years ago, that gold could soar to up to $5,000 over the longer term.

I doubt I will see that ever happen during my lifetime, given the long cycle of price changes for gold, which takes decades. I am more interested in when gold will halt its continuous slide into the abyss. Some analysts claim there could be a much further downside move in the gold price to $900-$1,000, citing more US interest rate hikes in the future as a major factor.

I don't buy that doomsday scenario, as I believe some basic market rules that govern cost and price, as well as supply and demand, still apply.

The average industry cost of gold production is $1,200 per ounce, according to the World Gold Council in 2014. Any price below that level means possible bankruptcies of mining companies, which will in turn limit gold supply, and thus buoy prices.