Gold Could Hit $3k and Oil $100 by 2025, Say Citi Analysts
Gold @ $3000
According to Citi, gold prices have the potential to skyrocket to $3,000 per ounce, and oil to $100 per barrel, within the next 12 to 18 months, driven by three key catalysts.
Gold, currently priced at $2,016, could experience a surge of approximately 50%.
This surge could occur if central banks significantly increase their purchases of the precious metal, in response to factors such as stagflation or a profound global economic downturn.
Aakash Doshi, Citi’s North America head of commodities research, highlighted these possibilities in a discussion with CNBC.
De-Dollarization Effect
The potential surge to $3,000/oz gold could be primarily fueled by a significant uptick in the ongoing trend of de-dollarization among Emerging Markets central banks, leading to a crisis of confidence in the U.S. dollar, as highlighted by Citi analysts including Doshi.
This scenario could result in a doubling of central banks’ gold purchases, posing a challenge to jewelry consumption, which currently stands as the primary driver of gold demand, as explained further by Doshi.
In recent years, central banks’ gold acquisitions have surged to unprecedented levels as they aim to enhance reserve diversification and mitigate credit risk, according to Citi. Notably, China and Russia have been at the forefront of these purchases, with countries like India, Turkey, and Brazil also ramping up their acquisitions of bullion.
The World Gold Council’s January report revealed that global central banks have sustained over 1,000 tons of net gold purchases for two consecutive years.
Doshi emphasized to CNBC that if this trend were to rapidly double to 2,000 tons once more, it would significantly bolster the outlook for gold.
Another Factor
Another factor that could propel gold to $3,000 is the occurrence of a “deep global recession,” prompting the U.S. Federal Reserve to swiftly slash interest rates, stated Doshi.
In such a scenario, interest rates could plummet to 1% or even lower, significantly boosting the appeal of gold compared to fixed-income assets like bonds, which would offer weaker returns in a low-interest-rate environment.
The Federal Reserve’s benchmark interest rate has hovered between 5.25% and 5.5% since July 2023, marking the highest levels since January 2001 when it spiked to 6% following the burst of the dot-com bubble. Market expectations suggest the Fed may initiate rate cuts in May or June.
While stagflation—a combination of increasing inflation, sluggish economic growth, and rising unemployment—could also act as a trigger, Doshi deemed this scenario to have a “very low probability.”
Gold is often perceived as a safe haven asset and tends to thrive during periods of economic uncertainty, drawing investors away from riskier assets like equities.
Despite these potential catalysts, Citi maintains its base case for gold at $2,150 in the latter half of 2024, with an average price slightly above $2,000 in the first half of the year. However, Doshi noted that a new record could be within reach by the end of 2024.
Oil @ $100?
Another wildcard scenario highlighted in Citi’s report was for oil prices to hit triple digits again.
The catalysts for oil to hit $100 per barrel include higher geopolitical risks, deeper OPEC+ cuts and supply disruptions from key oil producing regions, Doshi said.
The ongoing Israel-Hamas war has not hit oil production or exports, with the only significant impact being the Houthi attacks from Yemen on oil tankers and other ships traversing the Red Sea.
Major oil producer Iraq has been impacted by the conflict and any further escalation could hurt other major OPEC+ suppliers in the region, Citi said.
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