Gold prices continue to shine near record highs, with Citigroup forecasting that the precious metal could reach $3,000 per ounce in the next 6 to 18 months. The bullish outlook comes amid heightened geopolitical tensions in the Middle East and strong physical demand from central banks in emerging markets.
Aakash Doshi, Citi's North America Head of Commodities Research, believes that the "big driver" behind the $3,000 per ounce target is the expectation that financial demand for gold will "catch up to what is strong physical" demand. In the post-pandemic period, central banks in emerging markets have been buying "record amounts of gold," solidifying the strength in the "physical demand pool."
According to Doshi, the increased central bank buying has served two critical functions: "It has lifted the gold price floor and it's also damped downside price volatility." Central bank demand, which accounts for 25 to 27% of annual gold consumption, is an important factor supporting the market.
With gold already trading at "all-time highs," Doshi believes the support base for gold prices will lie between $1,900 and $2,000 per ounce, with the commodity expected to trade "above that benchmark" going forward.
The recent surge in gold prices has been fueled by a combination of factors, including escalating tensions in the Middle East. After Iran fired over 300 drones and missiles directly at Israel, most of which were intercepted by Israel's Iron Dome air defense system, market watchers are closely monitoring a potential retaliation by the Jewish state. A significant retaliation could lead to a wider conflict, triggering renewed buying of gold, as well as a rally in oil prices and strengthening of the U.S. dollar, according to Bartosz Sawicki, market analyst at financial services firm Conotoxia fintech.
Gold, which retains its value as a hedge against inflation, tends to perform well in periods of economic uncertainty when investors move away from riskier assets such as equities. Spot gold prices have climbed over 15% year-to-date, hitting an all-time intraday high of $2,448.80 per ounce last Friday.
The precious metal's rally has also been supported by expectations of rate cuts by the U.S. Federal Reserve. Although hotter-than-expected inflation in March pushed back market expectations of a rate cut to September, with the expectation now for two rate reductions instead of three, analysts remain bullish on gold's outlook.
"We project $3,000/oz gold over the next 6-18m," said Citi's analysts led by Aakash Doshi. The financial gold "price floor" has also moved higher from around $1,000 to $2,000 per ounce, according to Citi.
Goldman Sachs has also revised its price target for gold upward from $2,300 per ounce to $2,700 by the end of the year, referring to the gold market as an "unshakeable bull market."
