Citigroup cuts gold's three-month target

Chennai: Assessing the recent bearish trends in the bullion market, Citigroup has cut its three-month gold price target by $90 an ounce. However, the company is still bullish about the long-term prospects of gold and expects fresh cyclical highs by 2021.

“Citigroup has cut its three-month gold price target to $1,485 from $1,575 an ounce. According to the note, they are still bullish saying that they “remain bullish bullion in the medium-term and still project fresh cyclical highs being breached by 2021,” reported Kitco.com.

In September, Citigroup had been extremely bullish about the yellow metal, as it had predicted that the prices might rally above $2,000 an ounce in the next two years. While the assumption still holds ground, in the short- to medium-term, the prospects look rather subdued.

Gold has fallen from its annual high of $1,580 an ounce to the $1,460 levels now. In the past three to four weeks, considerable weakness has been evident in the bullion counter, as some of the macro-economic factors that have been pushing the prices up were seen faltering.

Though the US Federal Reserve has not reversed its rate cut regime yet, it has been sending out signals that the economy is in a better shape and probably it would go slow with cuts, said Himanshu Gupta, Vice President and Head of Commodities and Currencies Research at Globe Capital.

The US-China trade war is also seen cooling down, with both parties sitting down to talks for at least partial resolution. Market expectations are that both parties will arrive at some tariff reduction decisions this time. A reduction in global uncertainty is a negative for safe haven assets like gold. Chinese consumers, grappling with the slowest economic growth since the early 1990s, were also seen shunning gold, anticipating further decline in prices.

In fact, the two large consumers of physical gold--China and India---have seen tremendous drop in consumption since prices started moving up. This has also undermined gold’s prospects.

Further, the US treasury yields were seen recovering from their lows, allaying fears of a global recession. The global equities, including the US market, picked up well in recent times, leading to flow of money from risk-averse assets to riskier assets.

Citigroup’s downward revision of price target comes at this backdrop. However, market watchers do not anticipate any further sharp fall from the current levels. On the other hand, they expect prices to move up next year and gain further strength in 2021.

“We could see gold perhaps correcting to $1,440- $1,420 levels and some consolidation is insight in the next three to four weeks as the fund managers would consolidate their positions by the year-end. However, thereafter prices can move up and by next year gold can break this year’s highs. Possibly it can go up beyond $1,600 and remain within $1,700,” said Gupta.

According to him, there is no trend reversal yet for gold. The trade war is not over yet and the global growth still is predicted to be lower. The US Fed has not started increasing the interest rates and this is good for gold. “We have seen some profit booking after gold rallied 20 per cent from the recent lows. The fundamentals have not reversed,” he added.