Gold posts its biggest 2-month drop ever. How its price could still double over the next 5 years.

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By Frances YueCentral banks aren't done moving away from the U.S. dollar, and toward the yellow metalGold makes up only 16% of emerging-market central-bank reserves now.Gold prices cemented their worst two-month decline on record on Thursday, based on the price of heavily traded futures contracts.But prices for the precious metal could still nearly double in the next five years if emerging-market central banks ramp up their push to diversify their reserves away from the dollar, according to Deutsche Bank.The precious metal could rise to $8,000 in that time if emerging-market countries all target a 40% gold share in their reserves, even if their foreign-exchange reserves overall fall to $5 trillion, Jim Reid, global head of macro and thematic research at Deutsche Bank, wrote in a Wednesday note.Front-month gold futures (GC00) lost 0.7% this month to settle at $4,614.70 on Thursday. They were down $615.80, or 11.77%, over the past two months, their largest two-month net decline on record, according to Dow Jones Market Data.Gold is still up 7% year to date and 39.5% over the past 12 months. Emerging-market and developing economies were recently holding roughly the equivalent of $7.5 trillion to $8 trillion in reserves, according to the International Monetary Fund's latest annual report.Deutsche Bank's forecast comes as investors debate whether gold's rally has come to an end. The metal has had a strong run over the past year, but its lackluster performance during the Iran conflict has disappointed some investors who expected a sharper haven bid.Reid's argument was that the longer-term bull case for gold ultimately relies on sustained buying from emerging-market central banks. "Ultimately, we think the long-term outlook for gold will depend on the level of reserves EM central banks end up with, and the share of gold they target," he said in written commentary.For now, gold makes up only 16% of emerging-market central-bank reserves, even though those central banks have accounted for all of the net central-bank gold purchases since 2008, Reid noted. That suggests there could still be significant room for additional buying from them, he said.In particular, the scenario in which central banks continue buying gold could play out if there is a broader reversal of the post-Cold War order that helped cement the dollar's DXY dominance in global reserves, according to ...

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