So what drove [the] massive increase in gold prices during the last decade? We believe four major factors have been largely responsible for the recent surge in gold prices:
1) The inception and proliferation of gold-backed, exchange-traded funds (ETFs).
2) Growing retail demand from emerging markets, particularly from China and India.
3) Central banks switching from being net sellers to net buyers of gold.
4) Miners scrambling to eliminate their gold hedge books.
While we think that some of these factors could continue to provide a tailwind for gold prices, we believe many of the factors cited above are unsustainable over the long run, thereby lending support to our lower long-run gold price forecast (compared to high current prices).
Granted that these factors have been partly responsible for gold's ten-year bull market, especially #2, but note what that list of four has left out. There's nothing about demand stimulated by rising inflation [remember 2007?] or fiscal crises. There's nothing about using gold as a long-term hedge against fiscal irresponsibility. There isn't even the mainstream-friendly factor of gold's newfound popularity as portfolio insurance. They did hit the spot with respect to #2, but the others do little more than scratch the surface. As for #4, the timing of at least one of those de-hedgers (Barrick) was embarrasingly maladroit. They did so right at the top of the late '09 run, after which there were a lot of skeptics crowing about the end of the purported gold bubble. Gold did face a correction that eventually drove it down from Dec. 2nd's $1,225 to $1,045 at the Feb 4th '10 bottom, but we now know that the exploded-bubble thesis has been definitively disproved.
Yes, what Morningstar considers to be primal tailwinds does reveal their circle of competence. With respect to gold, they seem to be wandering out of it. Even the scholar-validated driver, of low or negative real interest rates pushing gold up, gets only a passing mention in the midst of explaining why gold oughta go down.