From $US250 ($366) per ounce in 2001, gold hit a peak of ~$US1,900/oz in 2011, fell back to ~$US1,000/oz in 2015, before making its latest recovery to above $US1,550/oz.

What drives these wild price swings?

Gold price ($US) over the past 20 years.

There are two different factors that help drive the gold price, McKinsey partner Oliver Ramsbottom says; traditional supply and demand, and macroeconomic factors.

On the one hand, there’s traditional industrial demand in the form of jewellery and technology, which is reasonably steady year-on-year. In 2018, gold demand reached 4,345.1t. Of that, jewellery and technology accounted for 2,200t and 334t, respectively.

Then there’s financial demand.

“You have financial demand in terms of people putting their assets into ETFs [exchange-traded funds], financial coins, and then obviously central-bank purchases as well,” Ramsbottom told McKinsey Podcast host Simon London.

Collectively, at the end of 2018, central banks around the world held around 33,200 tonnes of gold — about one-fifth of all the gold ever mined.

(Because they have so much pricing power –hence the ability move the gold price — there’s a Central Bank Gold Agreement (CBGA) limiting the amount of gold that signatories can collectively sell in any one year.)

This is where macroeconomics comes in.

“Unlike typical commodities that have their prices driven by simple supply and demand balances, gold is different,” Ramsbottom says.

“We’ve certainly seen that over the past two or so years, where gold prices react to movements in the interest rate by the Fed [Federal Reserve Board].

“Gold prices [also] move notably up on the back of economic uncertainty, be it around the US economy, be it around the Middle East — or the geopolitical environment.”

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McKinsey consultant Greg Callaway added that gold prices had historically peaked during periods of incredible economic stress.

In real-dollar terms, gold prices hit around $US1,700 per ounce, both in the early 1980s and the early 2000s.

“The 1980s followed the first oil crisis in 1974 and then the second in 1980. This drove hyperinflation. The stories of people queuing for kilometres on end in the US are widely told,” Callaway says.

“Similarly, if we move to 2011, what really drove prices up here were the negative yields and low interest rates — in many cases negative.

“It’s typically when you see those stress factors coming through — and it’s not necessarily the same ones at a particular point in time — that move prices up.”

Ramsbottom says there’s one other factor that will be interesting to monitor going forward – de-dollarisation.

“We’re aware that, over the past 50 or so years the [US] dollar has been the reserve currency, and commodities have been priced in [US] dollars,” he says.

“What we’re seeing, potentially, is a move to de-dollarise the global economy.

“We think that that’s going to increase the role that gold has: maybe not moving back to a gold standard but certainly having a larger role to play, which we think would be positive for gold prices.”

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