I believe the short term, and long term outcomes of your question are different:
Short Term - Gold Price Down Downgrade credit rating of major banks => Less interbank/corporate lending => More margin calls => More deleveraging by banks and hedge funds => Increased flight to cash (USD) => partial sell-down of liquid assets to raise cash (e.g. gold) => eventual sale of poorer quality/illiquid assets.
Long Term - Gold Price Up More bank mistrust => More money injected by Fed to restimulate banking/business activity => More money printed by Government to stimulate consumer activity => continued devaluation of USD => possible ECB intervention to prop up USD => Devaluation of other currencies => Increase in price of gold and oil.
Thommo ==> Listen to all opinions that explain the 'LINKAGES' between events. Ignore all one-line statements (bullish or bearish) where cause & effects are not clearly explained. The truth is that NOBODY knows what is going to happen. Here are the main predictions:
1. US come out of recession in a year or so -------------------------------------------- The injection of liquidity by central banks around the globe will stop a financial collapse, and restimulate investment banking. The government stimulus packages will encourage spending and job creation.
2. Stagflation in the US ------------------------ Prices rise, but the economy slows. This can't normally happen (usually prices go down as demand decreases).
Inflation will take hold in food and oil prices (in part caused by demand from China, and in part caused by devaluation of the USD). Growth will be very low in Europe and the US, and people will have difficulty making ends meet.
Look up stagflation on google, or ask someone their recollection of what happened in the early 1970s. Oil price shocks.
3. Global Recession -------------------- Declines in the US and Europe will also cause growth to slow substantially in China. A global recession will ensue.
Take your pick .... and make your own decisions.
Here are 2 commentators who I like - and they currently have opposing views on commodity prices:
