Gold Prices Poised To Extend Current Bull Market Run Into A 12th Year

However, not all Wall Street analysts see more upside in 2013. Further, those who do see more upside peg their optimism on a variety of reasons, some of which are mutually exclusive.

UBS AG (NYSE:UBS) sees gold climbing to $1,900 per ounce, while London-based Capital Economics sees gold reaching at least $2,200 in the second half of next year. Sterne Agee expects that over the next 18 months gold will average $1,750 to $1,800 per ounce with upside to $2,000 and downside to $1,400.

Barclays PLC (NYSE:BCS) is less sanguine, citing gold's recent inability to break convincingly above the $1,700 level as well as the commodity's "identity crisis."

What could extend gold's bull run? UBS analyst Edel Tully sees two forces driving gold's price higher, "continued uncertainty around U.S. fiscal issues, and the view that major central banks will maintain loose monetary policies" for longer.

No matter what happens in Washington regarding the so-called fiscal cliff, that combination of automatic federal spending cuts and tax hikes, the yellow metal stands to gain.

"A ‘grand bargain’ would not necessarily be negative for gold, given the yellow metal's current positive correlation with risk and its lack of a safe-haven premium," Tully said in a note this week. "A compromise lacking specifics would benefit gold insofar as it would disappoint those looking for long-run fiscal discipline. Better for gold would be a resolution that includes lifting the debt ceiling, which would increase the likelihood of ratings agency action."

Central bank action next year also will buoy gold, she said, citing monetary expansion as the most important positive for the precious metal. 

"Implementation of the European Central Bank's Outright Monetary Transactions, and further Bank of Japan easing -- both of which we expect -- would also support gold, as would a weaker outlook for the yen, which competes with gold as a flight-to-quality asset."

Finally, Tully sees the commodity gaining from its historic appeal as a safe haven and its contemporary appeal as a risk asset.

"What is clear is that investors' underlying positive sentiment towards gold hasn't been dashed by its disappointing performance of recent weeks. Clients are still friendly towards gold, but as year-end approaches it makes sense that they are less keen to buy into weakness. Despite the recent price distractions, nothing has really changed. Gold requires more patience than it used to, but the macro backdrop remains encouraging."

Like UBS, Capital Economics sees gold benefiting from monetary policy, and in two ways: continued aggressive bond buying and interest rates that have been slashed to virtually zero, thus cutting the opportunity cost of holding gold.

Capital Economics makes the further case that gold stands to gain from emerging international banking regulations, particularly how the Basel III rules on Tier I capital end up defining the yellow metal. If Basel III, which is being phased in over several years, deems gold a Tier I asset it will lead to increased commercial bank buying of the metal. 

But even if it Basel III does not ultimately treat gold as a liquid asset, gold stands to gain next year.

"European regulators appear increasingly willing to recognise gold as a high quality liquid asset, Capital Economics wrote in a note this week.

"Others are likely to follow. Increased demand for gold to meet the tougher liquidity requirements could then go some way towards mitigating what might otherwise have been a large downside risk when the authorities do eventually take away the exceptional liquidity they have provided to the banking system. At the very least, official recognition of gold as a relatively liquid asset for regulatory purposes could provide an important psychological lift to the market and for its growing use as collateral more generally."

Capital Economics also sees the demand for physical gold as rising rather than falling or even staying flat.

"Crucially, an improving outlook for emerging economies is a positive for gold, as rising incomes mean that more people will be able to afford it. Indeed, China’s demand now appears to have bottomed out and India’s is already rising again, helped by the relative stability of the rupee since mid-2012. Last but not least, anecdotal reports suggest that demand from central banks will remain strong."

Central bank buying hit almost 100 metric tons in the third quarter, down sequentially from the record second quarter, but still very strong for an annualized run-rate of 400 metric tons, said Sterne Agee in a note.

Further, "central banks continued to accumulate gold in October as well, with nearly 40 metric tons purchased in the month," Sterne Agee said in a note. "Brazil's central bank increased its gold bullion reserve by 17.2 metric tons in October, while Kazakhstan added 7.5 metric tons to its gold reserves."

What could end gold's bull run?

Numerous factors, most of which center on the U.S. economy, could turn the lights out on the gold price party.

Sterne Agee cites "accelerating deflationary trends, a stronger U.S. dollar, global central bank withdrawals of liquidity and a reversal of net bullion purchases, positive real interest rates, further delayed timing of development projects and higher than expected cost pressures could impact valuation."

Barclays says all outcomes of the current fiscal cliff negotiations are negative for the price of the yellow metal.

"No matter what happens with the fiscal cliff, we do not see U.S. fiscal cliff issues as positive for gold whatever the outcome. If the cliff can be averted then investors will become more positive on other assets and gold will look less attractive. However, if the fiscal cliff turns out to be even more intractable than expected, then gold is likely to follow its well-established recent pattern in response to financial market shocks and prices are likely to fall as investors liquidate holdings, treating gold like any other risk asset."