A question that I now often receive is whether “we have reached the bottom?”

That’s a hard question to answer for European investors, considering that they pay their bills in euros. And if the scenario develops as I suspect it will — that the 'dollar bubble' will inflate to gigantic proportions, then both the gold price and the euro will fall further.

And if the dollar bubble grows even larger, the question is what will decline faster: gold or the euro?

After years of an extremely expansionary monetary policy, the money tap of the U.S. Federal Reserve is starting to falter. In anticipation of a return to 'normality' (in other words, an interest rate hike), the dollar price has appreciated strongly. And the central bank hasn’t even increased the interest rates yet!

The Dollar-denominated Debts of Emerging Markets Are a Huge Problem

It may look like a remote and irrelevant issue for you. Emerging markets have taken on large debts. And in many cases, these are denominated in dollars, as USD interest rates were low due to the 'accommodative' policies set forth by the U.S. central bank.

Now that the dollar is strengthening, those debts, in terms of their local currency, are running up fast and become more expensive to service. When a company earns its revenues in, let’s say, Thailand, and it has a debt denominated in dollars, an appreciating U.S. dollar results in a mismatch between the company’s gross income and its debt service costs.

Thursday we’ll hear whether the U.S. central bank will raise interest rates at last. The decision will be 'data dependent;' in other words, dependent on the latest economic figures. It is well-known that Fed chairwoman Janet Yellen particularly focuses on the labor market. The relevant figures have been so strong in the past few weeks that the Fed’s credibility is jeopardized if they do not raise interest rates this time around.

And even other central banks are chiming in and are asking the Fed to raise the interest rates. They say that the uncertainty surrounding a potential rate hike leads to larger negative consequences than an actual hike would.

Dollar Will Continue Its Way Up, Commodities under Pressure

Despite the fact that the EUR/USD exchange rate has been hovering around 1.12 for some time now, I expect that the dollar will continue appreciating. And don’t forget! Only last year, the EUR/USD exchange rate stood at 1.38.

Given the continuously increasing popularity of USD-denominated assets, the commodities market will remain under pressure. I don’t think we’ve seen the last correction yet, and I expect that the next correction may lead to a lower gold price than its previous bottom ($1.080/oz). Other commodity prices could also drop in line with gold, and the oil price may also continue its downward trend.

But, there’s also another option: the euro could return to parity' with the dollar. This would mean that the euro would have to decline by another 11.5%. If the gold price would also decline by 11.5%, it would mean a current gold price of $980/oz.

In these circumstances, even the U.S. stock market may reach new highs.

A $980/oz Price Target?

Could this be a realistic price target? Absolutely. However it doesn’t mean that European investors should postpone buying gold. After all, they buy gold with euros, and in the worst-case scenario, the euro will decline faster than gold. Moreover, economics is a human science, and investing an art. Predictions about the future are therefore uncertain; we can only formulate scenarios.

It is possible that we’ll never actually hit both price targets. And to be fair, there has hardly ever been a better moment to buy gold than now (and the coming time). Is it wise to delay a gold investment? Probably not.