What Makes Citigroup Think Gold Can Surge to $1,600?

Citigroup (C) analysts are quite bullish on gold’s prospects after its recent run. Even prior to gold’s rally, Citigroup said on June 10 that its base case was that President Donald Trump would apply a 25% tariff on the remaining Chinese goods and increase tensions with Europe and Japan.

If the Fed doesn’t cut interest rates in this scenario, then the markets could enter a full-scale bear market, with the S&P 500 (SPY) down 20% from its April peak. Citi outlined that in this scenario, gold prices (GLD) could surge to $1,600 per ounce.

In June’s policy meeting, however, the Fed signaled that it was game for a rate cut if needed, and the market has since been pricing in a 100% probability of a rate cut in July. In the second scenario Citi outlined, if a trade deal isn’t forthcoming and the Fed cuts rates, gold prices could still rise to $1,500 per ounce. If, however, a deal is struck between the US and China, Citi expects yields (TLT) to rise and gold prices to slip along with the US dollar (UUP).

In a more recent commentary, Citi said that gold could reach between $1,500 and $1,600 per ounce in the next 12 months, $1,500 per ounce by the end of 2019, and $1,450 per ounce in the next three months.

Gold miners’ prices have changed even more than gold’s. However, this is not surprising given that miners are usually leveraged bets on gold, amplifying its performance. For example, The VanEck Vectors Gold Miners ETF (GDX) has gained 25.9% in the last month, while the SPDR Gold Shares ETF (GLD) has gained 11.6%. Investors in even more leveraged funds such as the Direxion Daily Gold Miners Index Bull 3X Shares ETF (NUGT) and the Direxion Daily Junior Gold Miners Index Bull 3X Shares ETF (JNUG) have made a killing. This month, the ETFs have returned a whopping 91.7% and 87.1%, respectively.

You can read Gold Breaches $1,400: What’s the Next Stop? for more information.