Citigroup says cuts in Fed rates, global recession risks could propel gold above US$2,000

Gold prices may rally to a record above US$2,000 an ounce in the next two years, according to Citigroup, which gave a laundry list of positive drivers including rising risks of a global recession and the likelihood that the Federal Reserve will reduce interest rates to zero.

“We expect spot gold prices to trade stronger for longer, possibly breaching US$2,000 an ounce and posting new cyclical highs at some point in the next year or two,” analysts including Aakash Doshi said in a note received on Tuesday. That would exceed the record of US$1,921.17 set in 2011.

Low or lower-for-longer nominal and real interest rates; global recession risks – exacerbated by US-China trade tensions; and heightened geopolitical rifts are “combining to buttress a bullish gold market environment”, the bank said. Also, “in affinity to our US rates research colleagues, we believe the Fed will ultimately end up cutting rates all the way to zero”, the analysts wrote.

Gold hit a six-year high this month as central banks ease policy to address the slowdown in growth amid the trade war. This week, investors expect the European Central Bank to unleash more stimulus, while next week the Fed is seen cutting rates again. That has helped to drive flows into bullion-backed exchange-traded funds as investors track the trajectory of the US economy.

“For now, the US consumer and potential growth story is holding up,” Citi said in the note. However, “we remain more concerned about market signals – three-month to 10-year yield curve inversion – and leading indicators that are weakening at the fastest pace since the Great Recession,” it said.