(L) Oil Pump Jack and (R) Gold Bars
Getty Images
If any of three possible catalysts occur, gold prices could rise to $3,000 an ounce and oil prices to $100 a barrel within the next 12 to 18 months, according to Citi.
Gold, currently trading at $2,016, could rise by around 50% if central banks sharply increase their purchases of the yellow metal, potentially leading to stagflation, or in the event of a severe global recession. said Aakash Doshi, head of North American products at Citi. He told CNBC he did the research.
“The most likely wildcard path to $3,000/oz gold is a rapid acceleration of an existing but slow-moving trend. De-dollarization across central banks in emerging countries That, in turn, would lead to a crisis of confidence in the U.S. dollar,” Citi analysts including Doshi wrote in a recent note.
Doshi elaborated that this could cause central banks to double their gold purchases, posing challenges to jewelery consumption, the biggest driver of gold demand.
See chart…
Gold price in the past year
Citi said gold purchases by central banks have “accelerated to record levels” in recent years to diversify reserves and reduce credit risk. Central banks in China and Russia are leading the way in gold purchases, with India, Turkey and Brazil also increasing their purchases.
Global central banks have maintained net purchases of more than 1,000 tonnes of gold for the second year in a row. World Gold Council reports in January.
“If it happens again [to] We think a quick doubling to 2,000 tonnes would actually be very bullish for gold,” Doshi told CNBC by phone.
Another trigger that could push gold prices to $3,000 would be a “severe global recession” that could prompt the US Federal Reserve to cut interest rates quickly.
“That means the brakes are lowered to below 1% instead of 3%. That would take us to $3,000,” Doshi said, noting that this is an unlikely scenario.
Gold prices tend to be inversely related to interest rates. As interest rates fall, gold becomes more attractive compared to fixed income assets such as bonds, which have lower returns in a low interest rate environment.
An employee holds 1 kilogram of gold bullion at the YLG Bullion International headquarters in Bangkok, Thailand, Friday, December 22, 2023.
Bloomberg | Bloomberg | Getty Images
The Fed’s benchmark interest rate has hovered between 5.25% and 5.5% since July 2023, its highest level since January 2001, when it rose to 6% after the dot-com bubble burst.market expectations the fed will cut Prices are for May or June.
Stagflation – higher inflation, slower economic growth and higher unemployment – could also be a new trigger, but Dorsey said such a scenario was “very unlikely”. .
Gold is perceived as a safe haven and tends to perform well during times of economic uncertainty when investors move away from riskier assets such as stocks.
Aside from these three potential factors, Citi maintains that the base case for bullion is $2,150 in the second half of 2024, with gold prices averaging just over $2,000 in the first half of 2024. Doshi added that a new record could be reached towards the end of 2024.
Another wildcard scenario highlighted in Citi’s report was for oil prices to reach triple digits again.
Doshi said the factors behind oil prices reaching $100 a barrel include rising geopolitical risks, expanding OPEC+ production cuts, and supply disruptions from major oil-producing regions.
The ongoing Israel-Hamas war has not affected oil production or exports, with the only significant impact being Houthi attacks from Yemen on oil tankers and other vessels sailing in the Red Sea. .
Iraq, a major oil producer, is affected by the conflict, and further escalation could harm other major OPEC+ suppliers in the region, Citi said.
See chart…
Crude oil price in the past year
Recent developments show rising tensions on the Israeli-Lebanese border, raising concerns that the war in Gaza could spread to other parts of the Middle East.
Doshi said Iraq, Iran, Libya, Nigeria and Venezuela were vulnerable to supply disruptions, and that tightening US sanctions policies against Iran and Venezuela were potentially being considered.
Citi analysts said other geopolitical risks, such as Russia’s oil supply, could not be ruled out if Ukraine were to attack a Russian refinery with a drone. Dorsey maintained that the base case for oil is about $75 per barrel per year.
World benchmark Brent crude oil futures for April are trading at $83.56 per barrel, while U.S. West Texas Intermediate futures for March are trading at $79.13 per barrel.
