Buy the dip, says Citi in raising its gold-price forecast again
The bearish move in gold prices this week hasnt stopped one of the worlds biggest banks from raising its price targets.
Citi Research is predicting the yellow metal will average $1,280 in the current quarter, $1,300 in the July-September period, and $1,250 in the final three months of the year. Its full 2016 average price target is now $1,255 up from a late January estimate of $1,070.
The forecast is slightly counter-intuitive because it projects strength during the summer months, when prices are normally weaker, and a dip in the fourth quarter, normally a robust period for gold demand.
An opportune moment for buyers: Nonetheless, now is the time to invest in bullion, the bank said. While prices have fallen 3% (month to date) in May, we believe this may in fact prove to be an opportune moment to buy the dip, strategists wrote in a note issued Tuesday, titled Let the Sunshine in as Commodities Enter New Age of Aquarius.
In fact, the bank has become bullish on a large section of the commodities complex, especially oil. Commodities markets appear to have turned the corner and, led by the petroleum market, are accelerating their price recovery from the lows of the last year, they wrote.
Brexit could put breaks on Fed: While acknowledging the Federal Reserves hawkish tone in its April minutes, Citi nonetheless doesnt think the central bank will raise interest rates in June.
The risk of Brexit (U.K. exit from the European Union) is likely to complicate matters for U.S. policymakers, and we do not expect the Fed to move until after the June referendum, the note said. With the presidential election in November, the Fed likely can pull off only one rate hike this year, it added, effectively limiting the likelihood of a correction in gold prices for the next two quarters.
The new forecast contrasts with a note Monday in which Citi warned that gold could fall to $1,050 or even below $1,000 a level it hasnt seen since September 2009 if the ICE Dollar Index (DXY) returns to 100 or higher.
Of course, ongoing and future dollar strength is predicated upon one or more Fed rate hikes. Sure, the Fed could boost rates by 25 basis points at some point this year in order to give itself a cushion to cut again later, but it can only go so far. One and done at most, and that means the overall long-term picture for gold remains bullish.