Gold Prices: Cramer and Citigroup at Odds about Upside

Gold has been one asset benefiting from the ongoing US-China trade war. However, there are various opinions on its outlook. Some observers, such as Jim Cramer and Citigroup, disagree on what’s in store for gold.

Gold’s ascent this year started in May, when Donald Trump escalated the trade war. Since the end of May, the SPDR Gold Shares ETF (GLD) has gained about 17%, and the VanEck Vectors Gold Miners ETF (GDX) has risen 35.6%. However, for broader markets, trade and recession concerns haven’t made for smooth sailing. The S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) have gained about 7% each since the end of May. To learn more about gold price drivers, read Trump, Trade War, Powell: More Upside for Gold Prices?

Analysts and fund managers turning positive on gold

Many analysts and hedge fund managers have turned positive on gold this year. DoubleLine Capital CEO Jeffrey Gundlach, for example, expects gold to rise to $1,600–$1,700 per ounce. The world’s largest hedge fund manager, Ray Dalio, is also optimistic on gold prices. Paul Tudor Jones sees huge upside for gold as well.

Citigroup sees gold soaring to $2,000 per ounce

As reported by Fox Business, Citigroup (C) analysts believe gold could reach a record high of $2,000 per ounce within the next two years. Their forecast, as reported by Fox Business, is based on their views on the lower interest rates, rising geopolitical risks, US-China trade war, and rising gold demand. Gold’s last peak was seen in September 2011, when it reached $1,921 per ounce.

As reported by Fox Business, Citigroup analysts said, “We find it reasonable to consider an increasing probability that bullion markets can re-test the 2011-2013 nominal price peaks and trade to $1,800-2,000/oz by 2021/22 on the back of a US business cycle turn towards slower growth/recession on top of election uncertainty.” Citigroup’s forecast suggests an upside of about 35% from gold’s spot price.

Factors supporting gold prices

Several factors are supporting gold prices this year. Interest rates are expected to stay low due to slowdown concerns, and trade tensions don’t seem likely to fade anytime soon. After Trump announced tariffs on more Chinese goods in August, China devalued the yuan to its weakest level in about a decade. The US then labeled China a “currency manipulator,” and China retaliated by levying tariffs on $75 billion in US goods. Tensions have somewhat thawed this month, but a trade deal still seems elusive.

Central banks’ purchases and de-dollarization supporting gold

Another positive catalyst for gold prices is global central banks’ steady gold purchases, especially in Russia and China. These countries are moving away from the US dollar into gold amid trade tensions and sanctions. According to a July survey by the WGC (World Gold Council), 11% of emerging and developing economy central banks intend to increase their gold reserves over the next year. The WGC had reported earlier that global central banks purchased 651.5 tons of gold in 2018—the second-highest annual total on record.

Jim Cramer sees gold prices coming down

In contrast to Citigroup, CNBC’s Jim Cramer is skeptical regarding gold’s upside potential. On September 10, he said, “For months, investors have been moving their money into safe haven assets like Treasury bonds and gold.” He added, “But they’ve now run up dramatically and the charts, as interpreted by the always-astute Carley Garner, suggest that it’s time for both bond prices and gold prices to come down — or perhaps come down hard.” Garner is an analyst and co-founder of DeCarley Trading. Cramer often refers to her work for his analysis.

Gold overbought?

Cramer explained that after a run-up of more than 17% in the last four months, gold seems overbought. Its rally may soon end. There is, however, a catch here. Garner said that if the economy is moving toward a recession, gold could rise to $1,800 per ounce.

We believe that because it’s overbought, gold might see a short-term pullback. However, in the long run, lower interest rates, slowdown concerns, geopolitical risks, central banks’ gold purchases, and physical gold demand should keep gold’s rally going.

Among gold stocks, Eldorado Gold (EGO) has gained the most year-to-date, by 198%. Kinross Gold (KGC), Yamana Gold (AUY), and Agnico Eagle Mines (AEM) have risen more than 40% this year.