The bank’s commodities research team says low interest rates around the world, mounting recession risks that have been compounded by the U.S.-China trade war, rising geopolitical risks and increased demand are creating the perfect storm for the precious metal.
“We find it reasonable to consider an increasing probability that bullion markets can re-test the 2011-2013 nominal price peaks and trade to $1,800-2,000/oz by 2021/22 on the back of a US business cycle turn towards slower growth/recession on top of election uncertainty,” the analysts wrote. Gold hit a record high of more than $1,900 an ounce in August 2011.
Citi says lagging measures such as the U.S. consumer (retail sales, employment, etc.) and growth story are holding up for now, but that market signals (the inverted yield curve) and leading indicators are deteriorating at their fastest pace since the global financial crisis.
The analysts predict the precious metal will face near-term headwinds that provide “buy-the-dip” opportunities as it sees the Federal Reserve cutting rates to zero. While they believe a global slowdown could hurt jewelry demand in China and the high price of gold will slow coin/bar buying, strong demand from institutional investors and central bank moves should provide support.
They caution there are two outcomes that would put the top in for the yellow metal.
“While not the Citi base case, which anticipates that US-China trade tensions (e.g. no deal) will persist through 2020 US elections, a surprise trade deal coupled with a sharp upturn in global manufacturing data would probably suggest a peak for gold at the $1,550 /oz level for this cycle,” they wrote.