Markets: Another golden bear

Citigroup is predicting gold to tumble almost $US100 by year's end as the global economy continues to recover.

Citigroup have pinned their flag firmly to the mast of the gold bears.

Citi analysts are forecasting a gold price of $US1185 an ounce on average during the second half of this year. In 2014 Citigroup is predicting the price of gold will be even lower, at $US1143.

Gold, usually bought when economic conditions are uncertain or depressed, loses favour among investors as the global economy recovers, which Citigroup thinks it will next year. Citi forecasts a longer-term gold price of $US1050.

At 1358 AEST the spot price of gold was $US1280.30, down $US4.28, or 0.3 per cent from yesterday’s price of $US1284.57, according to Bloomberg data. Gold holdings in exchange-traded funds have fallen 23 per cent since the beginning of the year. Fund managers have slashed their net long positions on gold by 84 per cent since October last year, according to Citi.

Gold bulls that have bet the furious pace of central bank printing presses would cause higher inflation, sparking a gold rally, have been disappointed.

Public sector austerity drives to rein in levels of debt had reduced the demand for credit, inflationary pressures and any substantial gain in the gold price, says Citigroup.

“Regulations requiring banks to increase capital ratios have meant that banks have been forced to sit on increasing holdings of cash against risk,” says Citi. “All of these issues have essentially negated the impact of printing driven increase in money supply.”

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles