Gold heading towards $3,000? Citigroup’s Future Prospects

Gold is experiencing a moment of great splendor and Citigroup analysts predict further growth margins, assuming a possible rise towards $3,000 per ounce in the coming months. To better understand the dynamics of this market and the implications for investors, let’s analyze the forecasts of Akash Doshi, head of commodities research for North America at Citigroup.

Physical Demand and Financial Demand: Two Drivers of the Rise

Doshi points out an interesting discrepancy: the physical demand for goldrepresented for example by the purchase of ingots by private individuals, is growing at a rapid pace, while the financial question, i.e. that linked to investments in gold through financial instruments, is only recently catching up. This delay could result in a further momentum for the price of the precious metal.

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A Strong Signal from Central Banks

The role of central banks, particularly those in emerging markets, is a key factor in supporting the price of gold. In recent years, he has witnessed a record gold purchases by these institutionswith a peak of over a thousand tons in 2024, the third highest since 1967. This trend of accumulation of gold reserves by central banks highlights several reasons:

• Diversification of reserves: Gold represents an asset class that is uncorrelated with fiat currencies and stocks, offering a hedge against inflation and geopolitical instability.
• Protection against the depreciation of the dollar: Central banks in emerging markets are often exposed to the risk of depreciation of the US dollar, the main global reserve currency. Gold represents an alternative to diversify reserves and reduce this exposure.
• Increased demand for gold in the region: Economic growth and rising disposable income in emerging markets have led to increased private demand for gold as a safe haven and investment.

Central banks’ purchasing of gold provides structural support to the price of the precious metal, acting as a constant buyer and limiting market volatility. Furthermore, this trend reinforces the perception of gold as a reliable, long-term store of value, favoring a further rise in the price.

Macroeconomic factors and the role of the Federal Reserve

Doshi highlights how the recent increase in price of gold occurred despite some apparently unfavorable macroeconomic factors, such as the strengthening of the dollar and the increase in interest rates. This could indicate an undervaluation of gold relative to global economic conditions.

Looking at the future, the role of the Federal Reserve (FED) remains central. While no further interest rate increases are expected, Doshi believes their impact on gold could be muted. Furthermore, a possible cycle of rate cuts by the FED could act as a further catalyst for the rise in goldfavoring a decline in real rates.

Ultimately, the impact of macroeconomic factors on the price of gold depends on a combination of elements and the market’s perception of global economic conditions. Doshi’s analysis highlights the importance of considering the full range of factors, not just the seemingly unfavorable ones, when assessing gold’s future prospects.

A Paradigm Shift: From Safe Haven to Long-Term Investment

Doshi hypothesizes a paradigm shift in the gold market. In the past, the $1,000 per ounce mark was considered a price ceiling for the precious metal. Today, however, this threshold could represent a solid support level, with prospects of higher prices for longer periods.

Several reasons support this hypothesis:

• Growing structural demand: Physical demand for gold, fueled by factors such as rising wealth in emerging markets and uncertain geopolitics, remains strong.
• Supply reduction: Gold mining is a complex and expensive process, with limited supply growth.
• Concerns about inflation: Rising global inflation has pushed investors to look for assets that can maintain their purchasing power over time, such as gold.
• Geopolitical instability: Geopolitical tensions and regional conflicts increase demand for gold as a safe haven asset.
• Growing doubts about the stability of fiat currencies: Expansionary monetary policies and rising public debt in many countries fuel concern about the stability of fiat currencies, favoring gold as an alternative.

Citigroup Forecast and Conclusion

In light of these considerations, Citigroup has revised its figures upwards gold price predictionsindicating a potential reaching $3,000 per ounce within the next 6-12 months. However, it is important to underline that these are forecasts and that market performance can be influenced by multiple factors.

This article has provided an overview of the dynamics that are pushing the price of gold higher and the future prospects outlined by Citigroup. Investing in gold always requires careful market analysis and a well-defined investment strategy. Investors considering including gold in their portfolio should conduct their own due diligence, carefully considering their investment objectives, risk profile and tolerance for volatility. Gold can be an important component of a diversified portfolio, offering protection against inflation, geopolitical instability and economic uncertainty.

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