Big Surge In Gold Prices Coming, Says Citi

Citi Research is projecting that gold prices will reach $3,000 per ounce within the next six to 18 months, representing a 20% premium over the current forward prices and more than 25% above current spot prices. The research firm anticipates that trading will frequently test and surpass $2,500 per ounce in the second half of 2024.

The recent rally in gold prices has been supported by geopolitical tensions and coincides with record-high equity index levels. Consequently, a sharper shift toward a risk-off environment could provide an additional upward push to gold prices, the research firm said in an April 15 note.

Gold spot price has risen nearly 20% in the last 12 months. It touched an all-time high of $2,431.53 an ounce on April 12, according to Bloomberg data.

Citi Research has updated its baseline gold price forecasts. The 2024 estimate has been increased by 6.8% to $2,350 per ounce, while the 2025 forecast has seen a significant 40% upward revision to $2,875 per ounce.

Although a possible pullback in bullion prices in May or June appears more likely now, Citi anticipates strong buying support around the $2,200-per-ounce level, the research firm said in a note.

The yellow metal's recent surge has occurred despite increases in real and nominal yields, a more hawkish outlook from the Federal Reserve in short-term interest-rate markets and a strengthening US dollar, the note said.

While financial demand for gold seems to be catching up to the robust physical demand, the shortening of gold's implied "duration" since June 2021 is notable.

An anticipated cycle of Federal Reserve interest rate cuts and a subsequent rally in Treasury markets could act as a catalyst to push gold prices towards the $3,000-per-ounce mark, Citi said.

While monetary policy remains a topic of debate, the purchase of gold for reserves by central banks is a clear and ongoing trend. Citi continues to forecast that official sector gold purchases will exceed 1,000 tonnes in 2024, marking the third-highest volume since the Nixon shock in 1971.

Central banks are now absorbing approximately 25–27% of annual gold mine production, which not only raises the floor for gold prices but also helps to stabilise prices by dampening downside volatility.

In the post-pandemic era, China leads in gold purchases, but a range of emerging markets and even some developed markets, such as Singapore and Japan, are also increasing their gold reserves. Inflows into gold exchange traded funds could provide additional support to gold prices on the path to reaching the projected $3,000 per ounce.