On July 3rd, Citi analysts introduced a model for understanding and predicting gold prices, aiming to revitalize investment in this asset with a comprehensive, regime-independent approach. The model explains annual gold price movements over the past 55 years and quarterly changes over the past 25 years, identifying key price drivers.
Citi's model highlights that investment demand, from both private and public sectors, relative to gold mine supply, is the primary driver of gold prices. Citi reports that in the first quarter of 2024, gold investment demand in China and by central banks rose to 85% of mine supply, averaging over 70% of mine supply in the past two years. This surge has offset the negative effects of higher US real interest rates, pushing gold prices to record highs.
Citi forecasts continued growth in gold investment demand, potentially absorbing almost all mine supply in the next 12-18 months. They predict gold prices will reach $2,700-$3,000 per ounce by 2025, driven by expected US interest rate cuts and increased ETF demand. Continued purchases by Chinese and global central banks, influenced by excess savings, weak property markets, and de-dollarization, will also support this trend.
Several factors could further boost gold investment and outperform other asset classes, such as potential Trump trade tariffs, US fiscal policies, and geopolitical tensions in the Middle East. However, risks to this bullish forecast include weaker-than-expected China retail demand, reduced central bank demand, or delays in Fed interest rate cuts.
Citi's July forecast for gold to reach $2,700 to $3,000 per ounce by 2025 aligns with their April predictions and mirrors the upward revisions made by other major financial institutions on Wall Street. In April, amid escalating tensions in the Middle East and expectations of the Fed lowering interest rates in 2024, Goldman Sachs set a bullish target of $2,700, while Bank of America projected $3,000. UBS went even further, forecasting an impressive $4,000 per ounce—a potential doubling of current values.
Citi analysts Aakash Doshi and Arkady Gevorkyan likened gold to shining bright like a diamond. They adjusted their year-end 2024 price target to $2,350 per ounce, marking a 6.8% increase, and made a substantial 40% upward revision to $2,875 per ounce for 2025. They anticipate that the $3,000 level will be reached after regular testing of $2,500 in the second half of this year.
Citi attributes gold's rise to increased flows from managed money players, who are catching up with demand from physical consumers in China and central banks. They also suggest that a potential Fed cutting cycle or recession scenario heading into 2025 will further boost investment demand.
Deutsche Bank also weighed in, forecasting gold prices at $2,400 per ounce by year-end 2024 and at $2,600 by December 2025. According to their analysts, gold is likely to maintain its strength as new investors replace any profit-taking by early investors.
As of yesterday, July 11th, gold has increased by $358.10 per ounce in 2024, representing a 17.36% increase.
The rally in gold prices can be attributed to a confluence of factors including market concerns over persistent inflation in the U.S., escalating geopolitical conflicts, the approaching U.S. elections raising worries about the country's fiscal situation, and Central Banks buying gold.
Amidst these market dynamics, major Wall Street banks have been notably adjusting their gold price forecasts higher.
Why should you expect Gold to continue to Climb higher?
Gold is up over 750% over the past 25 Years
Gold's enduring status as a timeless store of value has remained steadfast throughout the centuries, with its allure undiminished. Widely regarded as the premier asset worldwide, its value steadily climbs year after year. Serving as a reliable hedge against economic uncertainties and inflation, gold stands tall as a cherished haven for investors, making it one of the most coveted investments in global markets.
Now, let's rewind 25 years and delve into the performance of gold prices over the past quarter-century. For investors with a long-term perspective, gold has consistently delivered substantial returns. In this piece, we'll examine the profits generated by gold investments from 1999 to 2024.
Profits in Gold Between 1999 to July 2024
In 1999, the average price of gold stood at $278 per ounce, rebounding from its historical low of $252 earlier that year. Fast forward to this week, and gold prices have surged past the $2,400 mark, fueling robust bullish sentiment. From July 11th, 2024, profits in gold range from $278 to $2,400 per ounce.
Imagine investing $10,000 in gold back in 1999 at an average price of $278 per ounce. With that investment, you could have accumulated approximately 36 ounces of gold. Fast forward to 2024, where gold prices now hover above $2,400 per ounce. That initial $10,000 investment could have blossomed into a remarkable $76,328 in profits.
This translates to an impressive return on investment (ROI) of approximately 763% from 1999 to 2024. To put it into perspective, the average compound annual growth rate (CAGR) of this investment is approximately 10.36%, reaffirming gold's status as a lucrative investment choice.
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Protect Yourself Against These Events by Hedging with Gold & Silver
Article by Harvard Gold Group
Source: U.S. Bureau of Labor Statistics
Source: Dec 30, 2023: https://www.resumebuilder.com/due-to-inflation-1-in-5-retirees-likely-to-go-back-to-work-this-year/
