SCENARIO 3: THE BULL CASE: $1,450 to $1,700
If there is an economic recovery in the emerging markets, this could be expected to lift jewelry demand in the region. On the other hand, if emerging market currencies remain weak, this might be supportive of growing investment demand in the region. Emerging market central banks could also potentially step up their buying to the equivalent of 15-20% of annual global demand.
Macroeconomics: There is a possibility that US equities could show their first significant decline in 10 years. Similarly, global bond yields could move further into negative territory, and the US economy could slip into its first recession in 10 years.
Geopolitics: There is a threat that ongoing impeachment efforts might produce the most divisive presidential election in many years, with the added risk of continued gridlock in Washington. US troops may remain mired in Afghanistan, Iraq, and Syria. The political situations in Iran and North Korea could continue to deteriorate. The ultimate outcome of the Brexit process may potentially be that all European economies suffer. All of this could be positive for gold demand and provide an endorsement of additional strategic asset allocation purchases.
The key drivers for the gold price under this hypothetical Bull Case would be a recession in the US and a deteriorating political situation around the world.
Interest rates can certainly exercise some influence over movements in the price of gold, but I think it is important to emphasize that historically, rates have been only one factor among many, and for much of the time, not one of the most important factors. Conventional wisdom has it that rising interest rates are bad for gold because they raise the opportunity cost of investing in gold. The Fed started raising rates in December 2015 and ended that process in December 2018 after eight rate hikes. What did gold do? It certainly didn't go down — in fact, the price rose 20% over that period . That tells me that there is a lot more to movements in the gold price than just interest rates.
This past year has been a dramatic one for gold, with the price breaking out above an upper band of $1,350/oz, which had been in place since the spring of 2013. 2020 is looking to be no less exciting, and gold may prove to be a beneficial source of diversification in portfolios. As we enter a new decade, the margin for error — and opportunity — will be narrower than it was during the decade that has just passed.