Gold prices could rise 50% to $3,000 an ounce in 12-18 months if the global economy deepens and central banks increase purchases, according to Citi Bank.
The world spot gold price is currently trading at $2,016 an ounce, significantly lower than the historical peak of $2,135 in December 2023. However, analysts at Citi Bank believe that gold could reach $3,000 an ounce in the next 12-18 months.
The most likely scenario for gold to hit $3,000 an ounce is an acceleration of de-dollarization by emerging market central banks, which could double central bank gold purchases, according to Aakash Doshi, head of commodity analysis for North America at Citi. Jewelry remains the main driver of gold demand.
“This trend is happening, but it is quite slow. If it accelerates, it will cause a crisis of confidence in the USD,” said Aakash Doshi.
Gold bars at a gold refinery in Corum, Turkey. Photo: Reuters
Central banks have been “buying gold at record levels” over the past few years as they seek to diversify their reserves and reduce credit risk, Citi said. China and Russia are the biggest buyers, followed by India, Türkiye and Brazil.
A January report from the World Gold Council (WGC) showed that central banks had net bought more than 1,000 tonnes of gold for the second consecutive year. “If that number doubles to 2,000 tonnes, we think that will be a big boost for gold prices,” Doshi said.
In addition, a deep global recession could also push the price of the precious metal to $3,000, as this scenario would prompt the US Federal Reserve to cut interest rates aggressively. "Interest rates could fall to 3%, or even 1%, which would send gold to new highs," Doshi said.
However, he said this was only a low probability scenario.
Gold prices tend to move inversely to interest rates, since the precious metal does not pay interest. When interest rates fall, gold becomes more attractive relative to fixed-interest instruments, such as bonds.
The benchmark US interest rate has been hovering around 5.25-5.5% for the past eight months. This is the highest level since 2001 - after the dotcom bubble burst. Markets are now predicting that the Fed will cut interest rates in May or June.
Stagflation (slow growth coupled with inflation) could also be another driver. Gold is considered a safe haven during times of economic and political turmoil. Investors tend to turn to the precious metal, away from riskier assets like stocks, during such times.
Still, as above, Doshi said this scenario has a "very low probability."
Under normal conditions, Citi forecasts the average gold price to be around $2,000 in the first half of the year and up to $2,150 in the second half of 2024. The bank expects that by the end of the year, the price will likely reach a new peak.
Ha Thu (according to CNBC, Reuters)
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