At the turn of 2015, gold was driven by the broad commodity sell-off, especially the drastic plunge of oil prices that was fueled by the stronger dollar, along with concerns over China's growth deceleration. Yet, the reality is that gold has low correlations with commodities and other asset classes.

In the past quarter, gold enjoyed a historic rally, soaring 17 percent — the best in nearly three decades. In the process, it outperformed other major asset classes, including stocks, bonds and commodities.

Until recently, the conventional wisdom was that the continued recovery of the US economy would support the dollar and the next rate hike, which, in turn, would pave way for gold's further decline. It was conventional wisdom at its best — persuasive but flawed.

US recovery does not mean a return to the pre-2008 world, but the start of the post-2008 era of long stagnation. As a result, rate hikes will be lower and have longer intervals than anticipated. Structural constraints will keep global growth prospects far lower than conventional wisdom presumes.

As the Fed is debating the role of the rate hikes, central banks in Europe and Japan continue to maintain quantitative easing and record-low interest rates. In the short-term, these de facto negative interest rate policies increase potential for destabilization, by contributing to currency friction, swelling balance sheets and asset inflation. In view of gold, negative interest rates matter. Historically, periods of low rates correlate with gold returns that are significantly higher than their long-term average.

In relative terms, China's demand has eased after the 2013 highs. In March, the People's Bank of China increased its gold reserves by the smallest amount since starting to release data on a monthly basis last year. Nevertheless, as China's public demand for gold has slowed, its private-sector demand is climbing.

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