Gold drifts higher, Citigroup says $2000 possible in next year or two
(USAGOLD – 9/11/2019) – Gold drifted higher this morning without much conviction and in the absence of any news of consequence. It is trading at $1490 – up $3 on the day. Silver is up 5¢ at $18.06. Gold has lost 4.2% since reaching an interim high of $1555 three weeks ago. Silver losses are more pronounced having fallen 7.8% from its $19.60 high earlier this month. Many analysts see this correction, though, as a healthy one reflecting normal profit-taking rather than something more enduring.
Citigroup is one that positions itself on bullish side of the gold ledger. In a client note issued yesterday, it forecasted “spot gold prices to trade stronger for longer, possibly breaching $2,000 an ounce and posting new cyclical highs at some point in the next year or two.” In a Bloomberg article, it cites the familiar list of market drivers – low real interest rates, recession risks, the trade wars, geopolitical tensions, etc. – and says “the Fed will ultimately end up cutting rates all the way to zero.” At $2000 per ounce – a number predicted by some analysts for the not too distant future – gold would surpass the record highs achieved in the aftermath of the 2008 financial crisis.
Quote of the Day
“Central banks and Basel III have more or less removed price discovery from the credit markets, meaning risk does not have an accurate pricing mechanism in interest rates anymore. And now passive investing has removed price discovery from the equity markets. The simple theses and the models that get people into sectors, factors, indexes, or ETFs and mutual funds mimicking those strategies — these do not require the security-level analysis that is required for true price discovery. This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis, but by massive capital flows based on Nobel-approved models of risk that proved to be untrue.” – Michael Burry, Scion Asset Management (Bloomberg interview – 9/4/2019)
Chart of the Day
Chart note: “Central banks,” says the World Gold Council, “held 34,000 tonnes of gold, as of Q1 2019 according to IMF data, making gold the third largest reserve asset in the world. Gold is generally considered to be a strategic asset that can be deployed for both short-term liquidity management and as a store of value over time. It is an asset that is well suited to meeting central banks’ strategic objectives of: safety, liquidity and return.”