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Citigroup suggests that $1000/oz gold could become a reality
if a mix of macro and supply demand forecasts sufficiently gel to send gold soaring beyond its historic ceiling of $850/oz.
Posted: Tuesday , 09 Oct 2007 on www.mineweb.com
Citigroup metals analysts said Monday they are positive on gold "based on a mix of macro and supply/demand forecasts," that could send gold beyond its historic ceiling of $850/oz to as much as $1,000/oz or higher under certain circumstances.
Noting that 2007 is running $62/oz above the 2006 average of $605/oz, analysts John H. Hill and Graham Wark declared that "we would not be surprised to break its historical highs of $850/oz."
The analysts theorized that the policy resolution to the current credit crunch may be "an extended ‘Re-flationary Rescue,' in a new cycle of credit creation and competitive currency devaluations that should be inherently positive for pro-cyclical basic materials, hard assets, oil and gold.”
“This could take gold to $1,000/oz or higher," they predicted.
Citigroup's research suggests that gold is entering a new investment-driven phase as gold market drivers "tend to oscillate between bouts of eastern physical/fabrication demand and western investment demand."
The analysts asserted that "the handoffs back and forth between these demographically distinct buyers, typically over six- to nine-month intervals, continue to define gold's stair-step ascent over the past five years. Investment driven-upside, typically featuring retail investors responding to macro jitters, tend to be violent and shorter-lived. Fabrication support tends to play off in a more muted manner."
Nevertheless, Citigroup feels that "investment has returned with a vengeance. This was driven first by safe-haven demand during the credit crunch and now by greater awareness of gold's critical role in the ‘re-flation trade'. Investment patterns in physical gold are mirrored by the equities."
Hill and Wark claimed that central banks "have been forced to choose between global recession, or sacrificing control of gold, and have chosen the perceived lesser of two evils. Long-await official sector accumulation in dollar-overweight/gold-underweight countries like China and Saudi Arabia could provide a catalyst."
-Redacted from the article appearing on www.mineweb.com on 10.09.2007-