As the United States targets Venezuela and eyes Greenland, Denmark's pension fund announces its exit from the U.S. Treasury market, while Canadian Prime Minister Carney visits China, declaring readiness for a "new world order." Globally, the concepts of "security," "fragmentation," and "order" are on edge; the old order is waning, yet establishing a new one remains fraught with challenges.
In our December 2023 report, "Gold: A Century, A Decade, Next Year," we argued that any escalation in order, economy, politics, or military affairs could introduce new logic for gold, advocating a strategic bullish outlook. By March 2025, in our report "Gold 'Rhapsody'—Price Projections Under Five Extreme Scenarios," we reiterated that the path to global order restructuring remains unclear, necessitating strategic attention to gold's potential upward surges over the medium term (5-10 years). The report explored five extreme scenarios: increased reserves by emerging markets, a crypto asset collapse, a shift in reserve currency status, escalated geopolitical conflicts, and a global return to the gold standard.
Within a year, these initial "fantasies" are progressively becoming today's "realities," validating our report's thesis. We reissue this eight-month-old report to offer further insights to investors: "Gold 'Rhapsody'—Price Projections Under Five Extreme Scenarios" (2025.3.31) [Ten-Year Strategic Bullish Gold Series Reports] Gold Series One: 20231218 - Gold: A Century, A Decade, Next Year Gold Series Two: 20240531 - The "Unconventional" Pricing of Gold Gold Series Three: 20250331 - Gold "Rhapsody"—Price Projections Under Five Extreme Scenarios Gold Series Four: 20250528 - Gold's Implied "Order Restructuring" Index: Capturing Trading Signals for Global Order Reshaping
**Report Summary**
**Extreme Scenario One: Increased Reserves by Emerging Markets** Cracks are appearing in the dollar-dominated global monetary system: emerging markets worry about U.S. debt sustainability, and the Russia-Ukraine conflict has triggered fears over frozen dollar assets. Systemic shifts in foreign reserve allocations are emerging: China purchased 44 tonnes of gold in 2024, accounting for 13.2% of new central bank demand; the Reserve Bank of India rapidly increased its gold reserve share from 8.09% to 11.35% in just two years; the National Bank of Poland was the largest gold buyer in 2024 (90 tonnes).
Monetary gold constitutes only 8.9% of major emerging markets' reserve assets, far below the 26.9% average for developed markets. Given the average annual global gold mine production of about 3,600 tonnes over the past five years, raising emerging markets' gold reserve share to the developed market level would require an additional 15,000 tonnes, consuming roughly 4-5 years of gold production. If achieved over the next decade, this would imply an annual incremental demand of approximately 40%.
**Extreme Scenario Two: Crypto Asset Collapse** Bitcoin faces a potential "house of cards" crisis from quantum computing advances and policy shifts. Google's 2024 Willow quantum chip, with 105 qubits, increases the risk of quantum attacks on Bitcoin's cryptographic foundation. Policy changes, such as a potential personal digital currency issued by Trump, could also impact Bitcoin. A breakthrough in quantum computing or significant policy shifts could severely undermine Bitcoin's value foundation.
Bitcoin's market capitalization is $1.7 trillion, compared to gold's $19.6 trillion—gold is about ten times larger. Historically, when Bitcoin crashed in late 2017, some safe-haven flows entered gold, pushing prices above $1,270/oz. Assuming a systemic risk causes a 20% Bitcoin drop over five days, with all outflow migrating to gold, this would mean daily gold purchases of $380 billion, far exceeding gold's average daily trading volume of $250 billion, potentially exhausting market liquidity.
**Extreme Scenario Three: Shift in Reserve Currency Status** The U.S. dollar's dominance as the global reserve currency may be structurally weakening. U.S. publicly held debt reached $28.2 trillion in FY2024; net interest payments hit $881 billion, surpassing defense spending. This unsustainable debt path raises concerns about dollar credibility among central banks. Although the dollar index remains strong short-term, its share in central bank reserves is gradually declining, accompanied by a rise in "non-traditional reserve currencies" like the Renminbi.
Reflecting on the British pound's decline from 64% to 30% of international reserves between 1899-1930, if the dollar's share falls from 55% to 30% over ten years, and considering that a 0.8 percentage point annual drop in dollar share recently correlated with ~1,000 tonnes of central bank gold buying, linear extrapolation suggests 30,000 tonnes of additional gold demand over a decade. This would consume 8-9 years of mine production, implying ~85% annual incremental demand.
**Extreme Scenario Four: Escalation of Geopolitical Conflict** Should geopolitical conflicts escalate into global military confrontation, gold, as the ultimate safe-haven asset, would be revalued. Panic buying would drive prices: combatant currencies would lose credibility, spurring public gold hoarding, while war-induced hyperinflation would force demand for tangible assets. The Russia-Ukraine conflict showed gold soaring post-escalation; Russian gold purchases surged 234% YoY in March 2022. A wider conflict would amplify gold's supply-demand gap, making it a natural winner in hot wars.
Assuming global debt grows 10% annually during a global military conflict, financed by monetization, $91.5 trillion in new debt would be created over a decade. With fiat currencies partially failing, if this new debt were backed by existing gold stocks (approximately 21,000 tonnes), each ounce of gold would need to support $14,000 of debt.
**Extreme Scenario Five: Global Return to the Gold Standard** A restructuring of monetary anchors is a core driver for gold appreciation. The gold standard links money supply to gold reserves, directly curbing central banks' ability to over-issue currency. While global trade still relies on fiat money, some nations, particularly those under sanctions or pursuing de-dollarization, are exploring gold settlements (e.g., Russia in energy trade, Iran via gold and barter).
Combined debt and broad money for major developed and emerging economies total $57 trillion and $102 trillion, respectively. If monetized globally, leading to a return to the gold standard, the existing $159 trillion in money would need backing by the current ~21,000 tonnes of gold, implying ~$24,000 per ounce.
**Risk Disclosures:** 1. **Probability Constraints of Extreme Scenarios:** The scenarios are extreme, low-probability "black swan" events. The analysis aims to provide an asymmetric risk perspective, not predict inevitable outcomes. Even if scenarios materialize, their intensity may be lower than assumed. 2. **Limitations of Quantitative Models:** Models (supply-demand, liquidity shocks) have limitations: gold prices are non-normally distributed; non-linear price elasticity is hard to capture; subjective judgments are inherent (e.g., gold confiscation rates, full fund migration from crypto). 3. **Limited Historical Samples:** Historical precedents for reserve currency shifts or major conflicts are scarce, introducing sample bias. Past systems (gold standard, Bretton Woods) are structurally different from today's fiat system. Scenarios like crypto collapse lack historical parallels, increasing model uncertainty.
**Report Body**
**I. Preface: Reconstructing Gold's Pricing Paradigm** **(A) Traditional Models Fail, A Paradigm Shift in Gold Pricing** Current gold price action defies traditional frameworks—prices hit new highs despite a strong dollar, with London spot gold surpassing $2,900/oz by Feb 10, 2025. Mainstream valuation models, whether annual supply-demand or quarterly macro equations, have declining explanatory power, revealing a core contradiction: gold's pricing logic is shifting towards deep geopolitical games and cracks in the monetary system.
**(B) Extreme Scenario Framework: Non-linear Boundaries of Gold Price Elasticity** To assess gold pricing amid transformative times, we move beyond macro equations and real rate models, returning to the quantity theory of money to explore potential price ceilings under extreme scenarios involving debt monetization, using monetary pricing and liquidity shock models.
A tiered analysis simulates gold's transition from supply-demand imbalance to monetary system reset: 1) Emerging markets raising reserves projects Year 10 price at $27,000/oz; 2) Bitcoin collapse projects median price at $3,479/oz; 3) Reserve currency shift projects Year 10 price at $93,000/oz; 4) Global military conflict projects median Year 10 price at $28,000/oz; 5) Global gold standard return projects median Year 10 price at $49,000/oz.
**II. Extreme Scenario One: Increased Reserves by Emerging Markets** **(A) Logical Background: Gold Awakens Amid Dollar Cracks** The dollar system faces inherent "Triffin dilemma" issues, with U.S. debt/GDP exceeding 120% and interest costs surpassing defense spending, raising sustainability concerns. The Russia-Ukraine conflict, triggering sanctions freezing Russian reserves, acted as a catalyst. Emerging markets' low gold reserve share (8.87% vs. developed markets' 26.89%) creates urgent need to substitute gold for U.S. debt.
Signs of systemic reserve restructuring are evident: China bought 44t in 2024; India's gold reserve share rose from 8.09% to 11.35% in two years; Poland's central bank bought 90t in 2024. Raising the emerging market share to 26.89% requires 15,000t additional gold, equivalent to 4-5 years of 2024's global production (3,661t).
**(B) Extreme Projection: Two-Stage Gold Price Surge** Stage 1: Central Bank Buying Feedback Loop. Selling U.S. debt to buy gold creates a self-reinforcing "buying begets higher prices" cycle. Stage 2: Global Gold Supply Chain Breakdown. Price surges and uncertainty may lead producing countries to restrict exports via laws like "Critical Mineral Security Acts," and refineries designated "strategic facilities," reducing capacity. We model a supply shock.
**(C) Estimation Results: Measuring Price via Central Bank Demand** Using a World Gold Council-based supply-demand equilibrium model (2020 data, Newton's method), with elasticities derived from 2010-2024 regression, we project prices for 2025-2035. Raising emerging market gold reserves to developed market levels over 10 years implies ~1,500t annual central bank demand, creating a ~500t annual deficit, driving prices to ~$26,858/oz in Year 10.
**III. Extreme Scenario Two: Crypto Asset Collapse** **(A) Logical Background: Bitcoin's "House of Cards" Crisis** Quantum computing advances (e.g., Google's 105-qubit Willow chip) and potential policy changes threaten Bitcoin's foundation. A breakthrough could significantly impact its value.
Bitcoin and gold prices have shown negative correlation. Post-Bitcoin crash in Dec 2017, gold rose above $1,270/oz, indicating potential fund flows. Bitcoin's market cap is ~$1.67T vs. gold's ~$19.6T.
**(B) Extreme Projection: Bitcoin Capital Flight** Stage 1: Capital Exodus. Assuming a 20% Bitcoin drop over 5 days ($668B daily outflow migrating to gold). Stage 2: Gold Liquidity Drain. The liquidity shock (modeled log-normally) triggers a price-depth negative feedback loop, causing non-linear price increases as market depth contracts.
**(C) Estimation Results: Measuring Price via Bitcoin Market Cap** Using Amihud's (2002) price impact model, relating trading volume and market depth, calibrated with Feb-Mar 2022 gold ETF flow, trading volume, and price data. Assuming Bitcoin collapse, the model projects a median gold price of $3,479/oz (90% CI: $3,088-$3,919).
**IV. Extreme Scenario Three: Shift in Reserve Currency Status** **(A) Logical Background: Structural Erosion of Dollar Hegemony** U.S. public debt ($28.2T, 97.2% of GDP in FY2024, projected to exceed 1946's peak by 2029) and net interest costs ($881B, > defense spending) create an unsustainable path, eroding confidence in the dollar's reserve status.
The dollar's reserve share is declining, but not in favor of other major currencies (euro, yen, pound); instead, "non-traditional" currencies (AUD, CAD, CNY, etc.) are gaining. Historically, during reserve currency transitions, gold appreciated 3-10x relative to the old currency (e.g., 2300% after Bretton Woods collapse).
**(B) Extreme Projection: Gold's Ascent Amid Dollar Decline** Projection 1: Declining Dollar Share. Analogous to sterling's fall from 64% to 30% (1899-1930), if the dollar falls from 55% to 30% over 10 years. Projection 2: Rising Gold Reserve Role. Based on recent correlation (0.8 ppt dollar share drop ≈ 1,000t gold buying), a linear drop to 30% implies 30,000t additional gold demand over a decade (~85% annual incremental demand vs. production).
**(C) Estimation Results: Measuring Price via Dollar Status Change** Using the same supply-demand equilibrium model. A 30,000t increase in central bank gold demand over 10 years (~3,000t/year) implies a ~2,000t annual deficit, driving the price to ~$93,000/oz in Year 10.
**V. Extreme Scenario Four: Escalation of Geopolitical Conflict** **(A) Logical Background: Gold as the Inherent Winner in Hot Wars** Global military conflict leads to gold revaluation: panic buying, currency credibility loss (hoarding), and war-induced hyperinflation drive demand. The Russia-Ukraine conflict showed this effect (234% gold buying surge in Russia, March 2022). Gold's supply-demand gap widens significantly.
**(B) Extreme Projection: Spiraling Supply-Demand Gap** Projection 1: Exponential Debt Growth. Assuming 10% annual global debt growth, monetized, adds $91.5T debt over 10 years. Projection 2: Debt Backed by Gold. Assuming fiat currencies fail, new monetized debt is backed by existing gold stock. Projection 3: Government Gold Confiscation. Historical precedent exists (e.g., U.S. Executive Order 6102, 1933).
**(C) Estimation Results: Measuring Price via Geopolitical Risk** Assuming new monetized debt is backed by usable gold stock. With 10% annual debt growth ($91.5T new money over 10 years) backed by ~216,000t total above-ground gold stock, Monte Carlo simulation (15% vol) projects a median gold price of $28,000/oz. The usable stock assumption might be optimistic.
**VI. Extreme Scenario Five: Global Return to the Gold Standard** **(A) Logical Background: Modern Fiat System Failure** A return to the gold standard would drastically revalue gold by re-anchoring money supply to reserves, limiting money printing. For the U.S., with ~8,133t reserves, restoring a 1:40 coverage ratio would require massive monetary contraction, boosting gold's marginal pricing power.
Non-Western gold trade settlement is emerging (e.g., Russia using gold for energy, Iran using gold/barter under sanctions).
**(B) Extreme Projection: The Ultimate Return of Gold Standard** Projection 1: Global Debt Monetization. Coordinated global money printing disconnects gold from fundamentals. Projection 2: Hyperinflation. Money velocity spikes if payment systems collapse. Projection 3: Gold Standard Return. Fiat system breaks, leading to a gold-backed system.
**(C) Estimation Results: Measuring Price via Debt Deficits** Assuming global monetization leads to a gold standard, where broad money ($102T) and debt ($57T) totaling $159T are backed by ~216,000t gold stock. Monte Carlo simulation projects a median price of $49,000/oz. The usable stock assumption might be high.
**VII. Risk Disclosures** **(A) Probability Constraints of Extreme Scenarios:** Scenarios are extreme "black swan" events; analysis provides asymmetric risk perspective, not predictions. Actual intensity likely lower. **(B) Limitations of Quantitative Models:** Models have limitations: non-normal price distribution, hard-to-capture non-linear elasticity, subjective judgments (e.g., confiscation rates, fund migration). **(C) Limited Historical Samples:** Scarce historical precedents introduce bias; past systems are structurally different; some scenarios lack historical parallels, increasing uncertainty.
Comments