Can anyone give a good explanation why gold was mostly flat for 20 years counting from 1987 and then it shot up in 2006-2007 and then dipped in 2011?

What caused the increase and what caused the huge drop starting in 2011?


The cause of the increase in 2006-2011 was the financial crisis, where, if you recall, the global banking system came close to collapse for reasons that are well documented. Rightly or wrongly, gold is seen as a safe haven asset in times of crisis.

The price of gold began to decline in 2011 when the markets decided that the risk of a global banking system collapse had passed without further incident.

In the period leading up to 2006, the price of gold was in a flat-to-down trend because there was little net buying interest in gold and large gold sales had been executed by various central banks around the world who felt that gold no longer had a place in central bank reserves.

In modern economies gold is seen as a "fringe" asset. It has no role to play. The recent financial crisis may have dented that perception, but those dents are now being forgotten and the price of gold is returning to its long-term downward trend. When the next financial/banking crisis is upon us, the price of gold will again (probably) rally. The extent of the rally will depend on the extent of the crisis.

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