Portugal’s prime minister has resigned, a new political regime looks imminent in Libya and Japan’s coastline seems to have shifted as much as four metres to the east.

But, while the world has changed dramatically in the last few months, it seems for many commentators, the foundations underlying the continued growth in gold prices over the last decade have not.

Speaking to Mineweb.com’s Gold Weekly podcast, GFMS CEO, Paul Walker, explains that while gold is likely to buffeted by various winds of change both political and economic, the current economic landscape is conducive to higher gold investment.

“There is a backdrop here of ultra-low interest rates, macro-economic dislocation, fears of global imbalances – the wrath of these things still remain solidly in place and that’s really the bedrock of the gold bull rally… the essential underlying glue that holds this whole story together in my view, is ultra-low interest rates, negative real interest rates, growing imbalances across a range of asset classes. And, as a result gold has benefitted.”

” We’ve always said gold is the canary in the coal mine here that’s signalled that something is not quite right and trust me, the macro-economic situation is still not quite right,” he says.

And, added to all of this, Walker says one also needs to include the continued demand from places like India and China which has further bolstered demand for the yellow metal.

“Undoubtedly the key underpinning factor in markets like India is a degree concern about where the global economy is, where the India economy is – it’s a backdrop of again negative real interest rates at the short end of the curve in India…and until such time that we see a significant shift in the interest rates, you’re going to see gold demand in China, gold demand in India – driven by a combination of genuine risk hedging and just pure speculative plays and this is where we’re getting into I guess the choppy territory for gold,” he says.

According to GFMS, this backdrop of negative real interest rates is likely to continue until the bond market speaks with “a very powerful voice” and says “we’re not going to fund US 10-year debt at 3.3%, we’ll only fund it at 4.3% or 5% etcetera.”

“Our house view at GFMS is the ultra-low rates existing through into next year.  Of course there’s an outside chance here that the bond markets finally do a reckoning of US dollar indebtedness and that’s not just federal but state debt, its city debt, its individual debt.  How all of this is compacting and influencing the macro economic backdrop of America and saying fine, we’re not going to fund this anymore – and if interest rates do move quickly and significantly that’s where gold is going to have to either carve out a new niche for itself or it’s going to come under some real pressure from investment flows.”

It is this risk of a drop off in investment flows that Walker cites as a potential risk in the short term.

“One of gold’s risks in the short term is that it is so heavily dependent on investment flows these days and investment can wax and wane quite dramatically. So, will we see prices moving high on average?  Yes we believe that is the case.  Could you see quite a bit of volatility on short term fluctuations in investment demand – yes you will.”

Despite this, Walker is confident that we will see a jump in gold prices above $1,500 in the not-too-distant future and certainly, by year-end.