The Strategist

Citi: Gold may jump to $ 2000 per ounce

09/19/2019 - 09:50

Gold prices will rise and reach a “new high in the next year or two,” Citi analysts said in a report. This maximum, in their opinion, could be $ 2,000 per ounce.

Interest in the metal is growing due to the monetary policy of some central banks (the Fed and the ECB have lowered interest rates), other central banks buying up gold (in particular, developing countries) as well as problems of the global economy. There is also the US presidential election in 2020, coupled with the risk of a slowdown in the country's economy, according to Citi. Besides, investments in gold made by UK exchange-traded funds (ETFs) have already reached a record due to the country’s inability to decide on Brexit and the political crisis.

Previously, gold peaked to $ 1,921 in September 2011. This summer, the price left the long sideways trend, breaking the level of $ 1,365-1,385, which limited their growth for six years, and soared to $ 1,557 an ounce on September 4. Since the beginning of the year, the metal has rose in price by 17%.

The rally in the gold market this year can largely be explained by the unexpected change in January of the Fed's monetary policy, which announced termination of interest rate hikes, said James Steel, Chief Precious Metals Analyst at HSBC. In July, the Fed lowered its base rate by 0.25 percentage points; a similar decline is expected in September, and the market is counting in softer monetary policy when forecasting prices, Steel says. 

There’s also the ECB, which introduced new monetary measure and lowered rates. “You need to buy gold at any level,” because leading central banks are again trying to soften monetary policy, legendary investor Mark Mobius said in late August: “The long-term prospects for gold are up, up and up. I say this because the money supply [goes] up, up and up.”

Investors are insured against risks by increasing investments in exchange-traded funds secured by physical gold. The amount of gold in them has already amounted to 2733 tons in 2016. This is only 2% less than the historical maximum of 2791 tons, fixed at the end of 2012, when gold was worth about $ 1665, says the WGC. Investments in gold ETFs have been growing monthly in Europe in 2019, with the exception of April. In the UK, they reached a record 577 tons in August (21% of all gold ETFs in the world).

Capital Economics analysts are skeptical about the prospects for gold, expecting the price to drop to $ 1350 by the end of 2020, “when it becomes clear that monetary incentives in the US and other countries will not be realized at the scale that investors expect.” Gold and silver prices have risen dramatically in recent months, so now we can expect a stabilization of the market, after which prices will continue to rise, said Eoin Treacy, publisher of the Fuller Treacy Money investment newsletter.