Global Markets Brace for a Potential Surge in Gold and Oil Prices
Financial analysts at Citi have predicted the possibility of gold prices skyrocketing to $3,000 per ounce and oil reaching $100 per barrel in the next 12 to 18 months. According to Aakash Doshi, Citi's North America head of commodities research, these forecasts are dependent on three potential catalysts.
The first catalyst revolves around a significant increase in gold purchases by central banks, particularly in emerging markets, leading to a crisis of confidence in the U.S. dollar. Citi analysts argue that a rapid acceleration of the existing de-dollarization trend could pave the way for a substantial rise in gold prices, challenging the dominance of jewellery consumption as the primary driver of gold demand.
Central banks, particularly those of China and Russia, have been actively diversifying their reserves with substantial gold purchases, reaching record levels in recent years. If this trend doubles quickly to 2,000 metric tonnes, it could significantly bolster gold prices.
The second potential trigger for gold hitting $3,000 is a deep global recession, prompting rapid rate cuts by the U.S. Federal Reserve. Doshi acknowledges this as a low-probability scenario but points out the inverse relationship between gold prices and interest rates. As interest rates decline, gold becomes more attractive than fixed-income assets like bonds.
Lastly, stagflation, characterised by increasing inflation, slowing economic growth, and rising unemployment, could be a third catalyst. However, Doshi considers this scenario to have a very low probability.
Despite these potential triggers, Citi's base case for gold is $2,150 in the second half of 2024, with an average price slightly above $2,000 in the first half. Doshi anticipates the possibility of a new record towards the end of 2024.
In addition to the gold forecast, Citi's report highlights the wildcard scenario of oil prices reaching $100 per barrel. Potential catalysts for this include higher geopolitical risks, deeper OPEC+ cuts, and supply disruptions from key oil-producing regions. The ongoing conflict in the Middle East, particularly the Israel-Hamas war and rising tensions on the Israel-Lebanon border, adds uncertainty to oil markets.
While Citi maintains a base case for oil at around $75 per barrel annually, Doshi points out vulnerabilities in major oil-producing countries like Iraq, Iran, Libya, Nigeria, and Venezuela. Geopolitical risks, such as potential supply disruptions from Russian oil supplies in the event of a conflict with Ukraine, further contribute to the complexity of predicting oil prices in the coming months.