According to Citigroup, the price of gold could grow to $2,000 per ounce in the next two years. Citi analysts believe that low interest rates and a growing risk of recession will drive the price up.
The forecast states that the ongoing trade war between the United States and China will increase the probability of a recession in the US economy. Current and future geopolitical conflicts will also help maintain a high price for gold. Taken together, these conditions will create the perfect conditions for an increase in the demand for gold, which is seen by investors as a hedging instrument in the context of high uncertainty.
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"We find it reasonable to consider an increasing probability that bullion markets can retest the 2011 to 2013 nominal price peaks and trade to $1,800-2,000 per ounce by 2021 and 2022 on the back of a US business cycle turn towards slower growth/recession on top of election uncertainty," the report states.
Citi analysts further predict that in the short term, gold will be able to withstand the pressure. A price correction will provide the perfect opportunity to increase investments. The team believes that the Federal Reserve will cut interest rates down to zero, thus making gold even more attractive as an investment asset.
A global economic downturn will lead to a decrease in the demand for gold jewelry in China, while the high price of gold coins and bars will limit their sales. However, these negative influences will be counterbalanced by a growing demand from institutional investors — mostly central banks in different countries, which regularly buy gold to increase their reserves.
The Citigroup team also points out that if Washington and Beijing sign a trade agreement before the US presidential election, the gold price rally will cease. In this case, the price is unlikely to grow much above $1,500 in the current cycle.
However, the probability of this outcome is low given the international context.
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