Gold's "Fantasia" Under the Unprecedented Transformation of a Century: Gold Price Projections Under Five Extreme Scenarios

Gold's "Fantasia" Under the Unprecedented Transformation of a Century: Gold Price Projections Under Five Extreme ScenariosA report titled "The 'Unusual' Pricing of Gold," released in March 2024 by Zhang Yu, Deputy Director and Chief Macro Analyst of Huachuang Securities Research Institute, and her team, points out that traditional gold pricing models are losing explanatory power, suggesting the existence of "invisible forces" behind gold's price. With the London spot gold price exceeding $2900 per ounce, the market is rife with debate regarding its future trajectory

Gold's "Fantasia" Under the Unprecedented Transformation of a Century: Gold Price Projections Under Five Extreme Scenarios

A report titled "The 'Unusual' Pricing of Gold," released in March 2024 by Zhang Yu, Deputy Director and Chief Macro Analyst of Huachuang Securities Research Institute, and her team, points out that traditional gold pricing models are losing explanatory power, suggesting the existence of "invisible forces" behind gold's price. With the London spot gold price exceeding $2900 per ounce, the market is rife with debate regarding its future trajectory. However, in the face of a century-long global transformation, we believe a bolder outlook on the mid-to-long-term upward range of gold prices is warranted. This report will adopt both qualitative and quantitative approaches, incorporating the current context of global order reconstruction, to explore extreme scenarios, hypothesizing five extreme situations to project the potential elasticity of gold prices and analyze potential risks. The core argument of this report lies not in the precision of the quantitative results, but in expanding the boundaries of thinking to explore the potential for gold price appreciation under truly "turbulent" conditions, and to recalibrate investors' cognitive bias towards tail risks. We reiterate that under the unprecedented transformation of a century, a turbulent era is difficult to predict, and the path of global order reconstruction has low visibility. From a medium-term (5-10 year) perspective, strategically prioritizing the upward momentum of gold is crucial. Once the visibility of global order reconstruction improves, the fiat currency of the new order may quickly leverage gold and take center stage.

Executive Summary

This report explores the boundaries of gold prices under extreme scenarios, drawing upon the quantity theory of money and liquidity shock models, and considering the possibility of debt deficit monetization. We simulate the transition path of gold from supply-demand imbalance to monetary system reset through a stepwise analysis of extreme scenarios:

1. Emerging Market Gold Accumulation: Assuming emerging market countries increase their gold reserve ratio to the same level as developed countries, simulating a gold price of $27,000 per ounce after ten years.

2. Cryptocurrency Collapse: Assuming a 20% crash in the Bitcoin market within five days due to systemic risk, with all funds flowing into the gold market, simulating a median gold price of $3479 per ounce.

3. Shift in Reserve Currency: Assuming the US dollar's reserve currency weight decreases from 55% to 30% within ten years, simulating a gold price of $93,000 per ounce after ten years.

4. Geopolitical Conflict Escalation: Assuming geopolitical conflict escalates into global military confrontation, with global debt growing at a rate of 10% annually, with new debt realized through monetization and ultimately repaid in gold, simulating a median gold price of $28,000 per ounce after ten years.

5. Return to a Global Gold Standard: Assuming global debt monetization by major countries leads to the collapse of the credit monetary system, and a return to a global gold standard, simulating a median gold price of $49,000 per ounce after ten years.

Main Body

I. Preface: Reconstructing the Gold Pricing Paradigm

(a) Failure of Traditional Pricing Models: Paradigm Shift in Gold Pricing

The current gold price trend is overturning traditional understandings the US dollar index remains strong, yet gold prices repeatedly hit new highs. As of February 10, 2025, the London spot gold price has surpassed $2900 per ounce. Mainstream global gold valuation models (including annual supply-demand valuation methods and quarterly macroeconomic equation methods) cannot effectively explain the gold price surge, and their explanatory power has declined. This reveals a core contradiction: the pricing logic of gold has shifted towards profound geopolitical games and cracks in the monetary system.

(b) Framework for Extreme Scenario Projection: Non-linear Boundaries of Gold Price Elasticity

To gauge the gold pricing logic under the unprecedented transformation of a century, we abandon existing macroeconomic equations and real interest rate models, returning to the ancient quantity theory of money, seeking its potential growth space in the monetary pricing of gold. Therefore, based on the quantity theory of money and liquidity shock models, considering the possibility of debt deficit monetization, we explore the boundaries of gold prices under extreme scenarios.

II. Extreme Scenario One: Emerging Market Gold Accumulation

(a) Logical Background: The Awakening of Gold Under the Cracks of the Dollar

The US dollar-dominated global monetary system is showing cracks: firstly, the dollar system inherently suffers from the "Triffin Paradox," with US debt/GDP exceeding 120%, and US debt interest payments exceeding defense spending, exacerbating concerns among emerging markets about the sustainability of US debt; secondly, the Russo-Ukrainian conflict catalyzed the sanctions by the US and Europe freezing $300 billion in Russian foreign exchange reserves, triggering an awakening in emerging markets. Meanwhile, the proportion of monetary gold in the global major emerging markets' reserve assets is 8.87%, far lower than the average level of 26.89% in developed markets. Emerging markets urgently need to replace US Treasuries with gold. Currently, systemic signs of restructuring foreign exchange reserve patterns have emerged in global emerging markets: China's gold purchases in 2024 reached 44 tons, accounting for 13.2% of global central bank additions; the proportion of gold reserves in the Indian central bank has rapidly increased from 8.09% to 11.35% in two years; and Poland (90 tons) was the largest buyer of gold globally in 2024. If global emerging markets increase their gold reserve ratio from 8.87% to the average level of developed markets (26.89%), they would need to purchase an additional 15,000 tons of gold, while global gold production in 2024 was only 3661 tons, equivalent to 4-5 years of gold production.

(b) Extreme Projection: Two-stage Gold Price Surge

Stage 1: Central Bank Gold Buying Positive Feedback Loop. Emerging market countries start to replace the dollar with gold, selling US Treasuries to compulsorily convert currency and buy gold, causing a surge in gold prices, triggering a chain reaction and forming a "the more expensive it gets, the more they buy" cycle. The gold purchases of central banks will form a self-reinforcing positive feedback loop.

Stage 2: Global Gold Supply Chain Disruption. With rising gold prices and increased price uncertainty, gold-producing countries may restrict gold exports through legislation, leading to delivery delays. Gold refineries may be designated as "strategic facilities," causing a sharp drop in global refining capacity. We will impose a supply shock on the annual global gold supply.

(c) Estimation Results: Measuring Gold Prices Using Central Bank Gold Purchase Demand

We have constructed a gold price prediction model based on supply-demand equilibrium, using supply-demand data from the World Gold Council, and solving for the market equilibrium price using the Newton-Raphson method to simulate the gold price trend from 2025 to 2035. The model considers the demand for emerging markets to increase their gold reserve share to the same level as developed markets within ten years, meaning an annual central bank gold purchase demand of 1500 tons, leading to a gold deficit of approximately 500 tons, ultimately resulting in a sustained increase in gold prices. After ten years, the gold price may reach $26,858 per ounce.

III. Extreme Scenario Two: Cryptocurrency Collapse

(a) Logical Background: The "House of Cards" Crisis of Bitcoin

Bitcoin may face a "house of cards" crisis brought about by the quantum computing revolution and policy changes. On the one hand, the countdown to the quantum revolution loosens the technological foundation of Bitcoin. Google's Willow quantum chip released in 2024 achieved 105-qubit computation, increasing the possibility of quantum computing breaking Bitcoin. On the other hand, Bitcoin may be affected by policy changes, such as the liquidity shock from Trump issuing a personal digital currency. If quantum computing breakthroughs or significant policy changes occur, it could significantly impact the value basis of Bitcoin. As of March 9, 2025, Bitcoin's market capitalization is $1.67 trillion, and gold's market capitalization is $19.6 trillion, approximately 10 times that of Bitcoin. Gold and Bitcoin prices have shown a negative correlation at times; after Bitcoin's price plummeted in December 2017, the gold price rose above $1270 per ounce, showing signs of funds flowing into gold after Bitcoin was impacted.

(b) Extreme Projection: Bitcoin Capital Flight to Gold

Stage One: Bitcoin Capital Flight. The dynamic migration of Bitcoin capital triggers a pulse-like inflow into gold. We assume that Bitcoin capital migration lasts for five days, implying an average daily outflow of $66.8 billion. The negative feedback mechanism of the gold market is activated, and the short-term liquidity shock of Bitcoin capital causes a significant contraction in the depth of the gold market, leading to a reduction in the actual amount of funds absorbed.

Stage Two: Gold Liquidity Depletion. Gold faces a liquidity shock, conforming to a log-normal distribution. The liquidity shock will trigger a price-depth negative feedback mechanism, and the inflow of funds will lead