Gold: "The next $200 move is likely higher" says Citi Analyst
CITI Analyst: "The next $200 move for gold is likely to be higher"
'$3,000 Gold In Various Scenarios'
Sections
- Economic Signals and Policy Shifts
- Central Banks are Buying Dips, So is CITI
- Equities Convey (Crowded) Calmness Right Now
- Wildcard Scenarios Point to $3,000
- China Gold Demand No Accident
- Tactically Bearish and Buying the $1925 Dip
- Bottom line
- Extended analysis
In their latest report, CITI presents a detailed outlook on gold navigating through the intricacies of economic shifts and monetary policy changes. Previous insights are in the Post: The Most Bullish Analysis by a Bearish Bank Ever.
Here is our write up on that report with fresh insights.
1- Economic Signals and Policy Shifts
“Spot gold and prompt Comex futures have held up remarkably well amid a sharp re-pricing of interest rate policy expectations in the US”
The report begins by adjusting the near-term outlook for gold, citing "Hawkish Fed rhetoric and a resilient US$" as key factors delaying expected policy rate cuts to mid-2024.
Despite this, the analysts reaffirm their medium-term gold price targets at $1,950/oz and $2,150/oz. This stance is predicated on a balance between solid physical demand and factors currently dampening gold prices, such as western investor outflows and the relative strength of equity markets.
The bigger upside in the title is couched in a “Blackswan” sort of fashion in this report. However what they really mean is existing processes taking place right now (like BRICS dedollarization) have a very real risk of being exacerbated due to geopolitics, or accelerated for purely financial reasons. These are not black swan events at all, but more like pure probabilities of events currently happening. More on that below.
For now: Consider the events in the second half of 2024, with the US Presidential election in November. Elections geenrally bring certainty ot markets. But, we feel if either Trump or Biden are running, the outcome will increase uncertainty.
Before that we have the next BRICS Summit in October with one important difference between this year and 2023s. Russia is hosting this one, and they, unlike the generally low drama Chinese, are apt to stir emotions with news items (real and imagined) as their style of interaction dictates. They play the western press rather well when given the chance.
Gold should have a considerable bid going into those events with a fair chance of follow through thereafter.
2- Central Banks are Buying Dips, So May CITI
"The gold market seems biased to tactically correct to $1,925- 1,950 at some point in the next 1-3m, and we would buy the dip."
The bank encourages strategic engagement with the market, especially during anticipated corrections to the $1,925-1,950 range, emphasizing the role of central bank purchases and steady bar/coin demand in supporting prices around a $1,900 baseline.
3- Equities Convey (Crowded) Calmness Right Now
[S]till anticipating "record average prices of ~$2,035/oz this year.”
With equity indexes reaching new highs and macroeconomic volatility impacting the gold, the analysts kick out their peak price forecast to the latter part of 2024, still anticipating "record average prices of ~$2,035/oz this year.”
4- Wildcard Scenarios Point to $3,000
“In various wildcard scenarios we could even see gold try to test $3,000/oz in the next 18m.”
Maintaining a bullish perspective, the report posits that the next significant movement for gold is likely to be upward from its current position.
The bank says the following on this:
Though a low probability outcome, in various wildcard scenarios we could even see gold try to test $3,000/oz in the next 18m.
This outlook is further tempered by the potential for single day events that could push gold prices up $200 in a single session suggesting a wide range of possibilities for gold's future market behavior.
Related: Video:Gold Report Calls for $3000 in Wildcard Scenario
The bank says the following on this:
All else equal, we think the next $200/oz move for gold is likely to be higher as opposed to lower from current spot. Though a low probability outcome, in various wildcard scenarios we could even see gold try to test $3,000/oz in the next 18m.
The point is, this report does not mention these prices in a “throw a bone” kind of way, but more like a “Hey there’s a 5 to 10% chance something will happen to accelerate Gold’s global repricing.”
Because when it comes down to it, that is what is happening the world over. Gold is being repriced against currencies one by one in what we believe is an orderly take-down of paper fiat against it in preparation for a multipolar monetary world.
5- China Gold Demand No Accident
“Chinese gold price premium has gone from record low to record high in three years…”
The analysis then delves into the rebound in jewelry demand post-COVID, albeit with minor adjustments to demand projections.
"Central bank demand remains structurally positive, likely mitigating the impact of sell-offs," highlighting the critical role of official sector purchases in the gold market.
The growing and persistent interest from central banks in gold, driven by strategic diversification out of US Bonds and risk mitigation efforts, underscores the foundational support for gold prices.
Chinese gold price premiums have hovered near record levels against sluggish 4Q’23 non-monetary imports, suggesting tight onshore supply. PBoC policymakers looking to defend the yuan may be exacerbating premiums, even though bank import restrictions were lifted late last September.
We believe this is not just jewelry demand, but due to monetary interest. Consider this fact:
If China is pursuing a strong Yuan policy, then that will bolster Gold demand locally. And if China is in fact ( as we believe) moving towards using Gold as a backstop asset in its BRICS endeavors, then this is a Win/Win for them monetarily.
Of course it could be a Lose/lose if their economy continues to languish and they must abandon the strong Yuan policy to save domestic GDP. But nevertheless, this is the situation now. China is pursuing strong Yuan and in doing so it creates a premium in Asian Gold in USD terms. That, also happens to be exactly what a global “repricing” of Gold does. It makes the Dollar’s purchasing power of Gold decrease.
6- Tactically Bearish and Buying the $1925 Dip
CITI provides strategic insights for navigating the gold market, emphasizing the value of seizing tactical buying opportunities. "The gold market appears poised for a tactical correction...and we recommend buying the dip," it advises, pointing to the importance of strategic market engagement for investors looking to capitalize on gold's intrinsic and speculative value.
It should be noted they are currently suggesting their clients buy a put spread and sell a call to capture the next potential move lower.
Tactically, a producer three-way looks interesting to hedge potential short-term downside to the $1,925-1,950 area.
An example of this type trade would be a 1975-1900 P.S. purchased vs a 2300 call sale. Implementing this lowers marketplace volatility and weakens call skew in the short term. If CITI is suggesting this…