(Kitco News) – $3,000 per ounce gold by 2025, which banking giant Citigroup considered an extreme bullish outlier scenario only two months ago, has now become not only possible but likely, according to Aakash Doshi, Citi North America Head of Commodities Research.
“In the summer of 2019, I was in your studios calling for $2,000 an ounce as a base case over the next 12 months,” Doshi said during an interview with Yahoo Finance on Tuesday. “Now we think $3,000 an ounce is in play over the next year or so.”
Doshi said investor demand is the “big driver” that will make this come to pass. “We think financial demand for gold is only catching up to what is strong physical [demand],” he said, referring to reports of burgeoning bar and coin sales. “That is a global trend, we've seen bar and coin demand surge since the pandemic, it's now above pre-COVID trend, and that we think represents a strong alternative fiat demand story.”
“Separately we see the official sector, central banks in the emerging markets in particular, to buy a record amount of gold over the last several years, including over a thousand tons in 2024, which would be the third-highest since 1967,” he said. “We think this physical demand is structural, it is strong, it is driven by a host of factors, and financial demand for gold is only catching up to that.”
Doshi pointed out that gold prices are up around 20% since the February lows. “It hasn't been a weaker dollar, the dollar is higher,” he said. “It hasn't been lower real or nominal rates at the belly of the US Treasury curve, those are at year-to-date highs.”
“We think the risk skew right now is still bullish for gold,” he added. “In the medium term, financial macro factors will catch up to what has been strong physical that has supported the gold market over the past year.”
Doshi said strong central bank purchases over the last two years have impacted the market in two key ways. “It's lifted the gold price floor, and it's also damped downside price volatility,” he said.
“If I was in your Studios a couple of years ago and I told you that the Fed was going to hike to 5 and a quarter to 5.50%, that real yields at the belly of the US curve were going to go from negative territory to plus-200 basis points, I don't think many people would have thought that gold is going to average $1,800 to $1,900 over those last couple of years, and then break out to all-time nominal highs in 2024,” he added. “So we do think the central bank demand story is important, because they're now absorbing 25% to 27% of annual gold mine production.”
Doshi said that the alternative fiat demand story is also gaining traction and is further boosting gold prices. “If I look at global debt loads, outstanding public and private, since the pandemic from 2020 to 2023, that Grew 20% to 25% to $315 trillion,” he said. “I think at some point, it just was a breaking mark for gold investors and gold bugs, and to that end, we think that post-financial-crisis, where you saw $1,000 an ounce turn from a gold price ceiling to a gold price floor, that we might now be in a period where $1,900 to $2,000 an ounce gold is actually a support base, and that prices are now going to trade higher for longer above that benchmark.”
“I think the surprising thing is that this gold price spike that we've seen over the last six to eight weeks has happened in the face of more hawkish Fed pricing,” he added. “We've gone from six to seven cut expectations at the beginning of this year, down to three to four in February, and now we're at less than two following strong U.S. retail sales from March.”
“I think from that standpoint, the risk-reward is probably for higher gold because hawkish pricing is probably peaking out. We don't think that hikes are really on the table in this environment, we think the Fed wants to keep 10-year treasury yields below 5% or at 5%, and that financial conditions are tight enough for the monetary policy authorities.”
“I would note that if there is a U.S. recession, which is not priced by markets right now, that could also be a further kicker towards $3,000 an ounce gold over the next six to 12 months.”
