Safe-haven demand fueled by global risk factors could raise gold prices in coming years reports Citibank.
What will be the main driver of gold prices in 2018? According to a recent report by Citigroup, gold prices should flourish in the new year due to safe-haven demand fueled by risk factors from around the globe.
As seen on Kitco, while acknowledging that financial news dominate the outlook for gold pricing, Citigroup’s analysts stated that gold’s use as a policy and hedge against risk is what really drives investment demand.
And while some market watchers pointed out gold’s volatility during risk events, the Citi analysts said that gold makes up for a lack of consistency during these times by rallying frequently from constant risks on the horizon.
The article references Germany and how it faces increasing political instability as Chancellor Angela Merkel remains unable to form a coalition government. She has even gone as far as to say she would prefer a new election instead of forming a minority government. Despite this, safe-haven demand for gold at the start of the week remained tame, something analysts attributed as investors shrugging off political concerns coming from Germany, likely because of the stability of its government in recent times.
Nonetheless, Citigroup’s analysts underlined risk as a key driver of gold prices not just in 2018, but the following years as well. Over the past year, geopolitical flare-ups ranked among the primary drivers of gold: events such as the surprising outcome of the Brexit vote in 2016, ongoing tensions in varius Middle Eastern nations and terror attacks in Europe all contributed to gold prices rallying for different lengths of time.
The article reports that the latest and most notable of these risk events was a publicized war of words between President Donald Trump and North Korea’s leader Kim Jong-un. The back-and-forth, which saw threats of all-out war from both sides and sparked fears of a global nuclear catastrophe, brought gold just shy of $1,350 an ounce, allowing it to post its yearly high.
In their report, Citigroup said that reasons for safe-haven buying will remain plentiful, listing various economic crises, uncertainty surrounding elections and military action as some of the global events that could fuel heightened interest in gold.
The bank’s forecast for gold was accordingly bullish, with its analysts expecting gold to solidify a position above $1,270 an ounce by the end of 2018. This will be followed by a climb to $1,350 and $1,370 in 2018 and 2019, before haven demand pushes prices to $1,400 and above for sustained periods through 2020, said the report.