According to a recent research report from the French Bank Société Generale (SocGen) it appears that the bear market in gold will continue for several more years. The bank sees the gold price falling to average $925 an ounce between 2016 and 2019.

SocGen believes that the U.S. Fed would raise interest rates by 25 basis points as of June of this year, followed by a series of rate hikes in 2016 and in 2017. By 2018, the bank expects to see a 4% interest rate.

Furthermore, SocGen did mention that Chinese and Indian demand have not picked up, which is not a very factual observation in our view.

Now all this could sound scary, knowing that the previous ultra bearish report from SocGen came two months before the big price crash of April 2013.

However, we would like to warn readers because we are living in a world of narratives. The narrative surrounding gold says that interest rate hikes will push gold prices lower. That could be true, indeed, but only if other gold price drivers will remain as-is.

Gold Price

To get an understanding of narratives, let us go back in time. On Monday, August 22nd 2011 Reuters published an article entitled “Banks race to raise gold price forecasts” which contained an overview of quite some gold price upward revisions of major banks:

August 3d 2011: UBS lifted its three-month price view to $1,850 from $1,600.
August 7th 2011: Goldman Sachs raised its gold price forecasts to $1,860 an ounce on a three, six, and 12-month horizon respectively.
August 8th 2011: JPMorgan lifted its price view on gold this year.
August 9th 2011: Bank of America-Merrill Lynch revised its 12-month gold target to $2,000 an ounce.
August 10th 2011: HSBC said gold could rally above $1,850 an ounce this year and average more than $1,700 an ounce for the remainder of 2011.
August 22nd 2011: Citi lifted its 2012 price view to $1,650 from $1,325.
August 22nd 2011: SocGen raised its average gold price forecast to $1,950 an ounce for the fourth quarter of 2011, pushing its 2011 annual average to $1,660 an ounce.

The narrative at that time was that gold would go (much) higher because of fear. The world was in a deep crisis at that point, as the financial collapse of 2008 was still very fresh in everyone’s mind, and Europe was about to fall apart. The narrative said that crises were here to stay, and that fear would keep on pushing gold higher.

Note the date of the article and the gold price projections: it came EXACTLY on the same day gold hit its all time high.

As well know meantime, those big banks missed their projections in a big way. There are theories out there that those projections were intended, as those banks would take the other side of the trade, but let us not focus on that for now.

Fast forward to today, what would you expect that these same banks are forecasting at this point? Indeed, the gold bull market is dead, based on the expected interest rate hikes, as well all other “reasons” which caused the gold price to decline in the last couple of years.

We would caution readers not to get caught up by those projections. The more bearish they become, they more convinced we become that they are becoming a contra-indicator.This beark market in precious metals has lasted for an exceptional long period of time. Bear markets simply do not continue endlessly, no matter what the forecasts are.