Gold prices are forecast to rise in the medium-term and could climb to more than $2,000 per ounce in 2021 as central banks have cut interest rates and the uncertain macroeconomic outlook has bolstered safe haven demand, Citi Research said.
“The current rates and Fed monetary policy environment is a primary driver of the bullish gold market outlook and should remain a structural tailwind in the medium-term,” Citi said in a note dated May 12.
Massive stimulus measures and interest rates cuts by global central banks, to support the coronavirus-wrecked economy, pushed gold to its highest in over seven years in mid-April and bullion is up 12% so far this year.
Low interest rates and economic worries trigger investor interest in gold as a safe haven. Widespread stimulus measures are also gold positive as it is used as a hedge against inflation and currency debasement.
However, gold may be prone to sell-off to the $1,500-1,550 per ounce area over the next few quarters, before marching higher again, the bank’s analysts noted, as a rout in equities might trigger the liquidation of gold holdings.
Gold dropped to a low of $1,450.98 an ounce in mid-March after economic growth worries led to a selloff in other assets and forced investors to dump the precious metal to cover margins. Prices are up about 17% since then.
“We are more confident about a fresh push higher in gold prices by late 2020, on the back of higher crude oil prices and perhaps an even more favorable rates environment,” Citi said.
The bank upgraded its 2020 average price view to $1,680 per ounce from $1,640 earlier, while maintaining its 2021 outlook at $1,925 an ounce.
Spot gold was steady at $1,701.57 per ounce by 0743 GMT, while U.S. gold futures eased 0.1% to $1,704.80.
In a separate note, Citi expects palladium prices to hit $2,500 per ounce in the next six to 12 months, with the physical market tightening once again on a recovery in global auto catalyst demand.
Platinum will be vulnerable to weak Chinese jewelry demand and European diesel vehicle sales, it added.
Accelerated production from Russia and sequential ramp ups in South Africa is expected to keep the platinum market in modest surplus in the second half of 2020, Citi said.
Palladium was unchanged at $1,859.17 per ounce, while platinum rose 0.7% to $758.77.
