Even as the price of gold has fallen below $1,900 per ounce at the time of this writing, after skyrocketing to an all-time high of around $2,075 per ounce in August, Citigroup believes the yellow metal could be headed for the next leg of the rally.
In its latest quarterly-commodities outlook report, Citigroup said gold prices could hit a record $2,200 per ounce in the near term (0 to 3 months) and $2,400 per ounce over the next 6 to 12 months. Citi lifted its erstwhile 2021 estimated "base case gold price" projection by roughly $300 per ounce to $2,275 per ounce.
What could lift gold prices higher in 2020?
Gold prices took off this year as investors flocked to the safe-haven asset amid fears of the impact of the coronavirus disease (COVID-19) pandemic on the global economy. Gold stocks have taken to the skies in response: Shares of the two largest gold miners in the world, Newmont Corporation (NYSE:NEM) and Barrick Gold (NYSE:GOLD), have rallied 46% and 53%, respectively, year to date, as of this writing.
In a recent interview with Bloomberg, Newmont's CEO Tom Palmer said he believes gold prices should remain elevated "for some time to come," echoing Citigroup's sentiments. Both Newmont and Barrick are minting money and recently rewarded shareholders with higher dividends in the wake of rising gold prices.
The price of gold has dropped off in recent weeks on the back of occasional profit-taking; poor demand for jewelry from key gold-consuming nations like India; and a stronger U.S. dollar. (The price of gold and the value of the dollar have an inverse relationship.)
This, however, could just be a blip in gold's 2020 bull run as there are several favorable catalysts:
- Run-up to the U.S. election, anticipated chaos on election day, and uncertainty about the outcome.
- Plummeting global bond yields.
- Injection of liquidity by global central banks, including the U.S. Federal Reserve, and the resulting weakness in the U.S. dollar.
- Global trade tensions and geopolitical risks.
- Raging COVID-19 pandemic.
According to Citigroup analysts in their latest gold outlook, the presidential election
could be an extraordinary catalyst for gold flat price and volatility skew late in the fourth quarter, even though historically there is no clear pattern for gold trading or price volatility into and after U.S. elections. That is one reason why we expect gold prices to hit fresh records before year-end.