Citigroup Sees Gold Reaching $2000

With significant turmoil in the financial markets around the world, some analysts are thinking gold will skyrocket as investors flee to safety. One such prediction from Citigroup (NYSE: C) pegs gold at $2,000 per ounce - roughly 150% higher than today’s $800 per ounce.

As Professional Investment Advisors, it’s our duty to understand the global economic forces at work on our client’s portfolios. In these historic times, this is especially true. Normally we don’t put much stock in analyst opinions, especially Citigroup opinions, but we feel this particular analysis hits the nail on the head. It’s also interesting how this is only reported on a European news site. Not surprising at all, really. Here’s an excerpt from the article:

The bank [Citigroup] said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

“They are throwing the kitchen sink at this,” said Tom Fitzpatrick, the bank’s chief technical strategist.

“The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

“Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes,” he said.

“This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised.”

“What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We’re already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore,” he said.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. “If true, this is a very material change,” he said.

It might be time to check out Yamana Gold (NYSE: AUY), Kinross Gold Corp (NYSE: KGC), and GoldCorp (NYSE: GG) or any number of individual gold stocks. If you’d prefer to track the performance of gold directly, which is generally seen as the least risky play, you can buy shares of the SPDR Gold Shares ETF (NYSE: GLD).

Comments

[raytayzmd:]

....Citigroup sees gold going to $2000???...uh, is this the same Citigroup that has so demonstrated so remarkably its prescience over the past year?...pardon me while I go place an order for some treasury bils.

2008 Dec 01 04:20 PM

[Larry House:]

Citi is raising the interest rates on credit cards. I guess they will use the increasing profits to buy gold.

2008 Dec 01 04:30 PM

[Al Capital:]

When currency was backed by gold, the response of trading imbalances or monetary policy was easier to predict. Now the "gold inflation play" is more opaque. Certainly if enough money chases gold, then the price of gold will rise. But the fundamental coupling between the economy and any commodity, including gold, is nearly opaque given global deflation that is expected to rage through global economies like a wildfire prior to an inflation phase.

2008 Dec 02 01:07 AM

[stokkked:]

In times of crisis and extraordinary financial stress, astute investors take refuge in precious metals. Their unique characteristics mean they are neither anyone’s liability (bonds) nor someone’s promise of performance (stocks). As central banks worldwide continue to accelerate the pace at which money is printed, inflation will increase while bonds, stocks and confidence in printed currencies will decline. Precious metals have been a proven store of value for over 3,000 years.

In today’s environment, portfolios need to be structured to counteract the effects of inflation. With bond yields being below the real inflation rate, it becomes difficult for investors requiring current cash flow to find suitable investments. An alternative to fixed income investments is placing a portion of assets into investments that appreciate at a higher rate than prevailing inflation. By liquidating some capital gains, investors will be able to maintain their income and preserve capital instead of experiencing a loss of both purchasing power and principal in fixed income investments. Over the long term, precious metals have generally outperformed inflation. A calculator comparing fixed income investments to liquidating a portion of the capital gains is available at (bmginc.ca/bondsvsbulli...). Investors can simply insert their own assumptions and see the results after tax and after inflation.

Inflation is coming. In an environment of soaring inflation, precious metals are poised to soar alongside.

2008 Dec 02 03:00 AM

[Mongoose:]

There is a lot of food for thought in the article as well the comments. However the picks I agree with, GG. KGC ,AUY, GLD . Good Luck

2008 Dec 02 08:53 AM

[Econ 101:]

Even a blind squirril finds a nut sometimes, and so maybe Citi does too.

My question is "at what price does the US government confiscate gold?" ala FDR?????

2008 Dec 02 12:08 PM

[No Free Cake:]

To Stokked: the web site you pitch assumes the world functions in a smooth line. It says, basically, sell a little of your profits each year from gold. Well, gold doesn't always make a profit so if you have to sell some to generated needed cash then you are depleting your capital. The same thing happens with a strategy like that for equities. There are good reasons people who need a cash flow from investments use equity dividends and bond interest. They are more stable and predictable than prices of (any) goods. Go look at a price chart for gold during all of the 90's - it isn't a pretty sight.

2008 Dec 02 06:27 PM

[Greg Pinelli:]

For those posters not aware..WE ARE NOT IN THE 1990s....always smart to start the discussion in the correct decade..or century.
Citi is not a monolithic unity...many parts..many opnions..this one on gold makes much sense..
This liquidity has to come out somewhere..Some tremendous presure will start to build in Spring 2009. At the first hint of a US$ weakening..at the first whiff of inflation..just about the time the markets realize no new..as in none!..oil product has been developed and is on line..then watch the stuff fly.
Those genius' in those1.25% T-bills will start slamming thru the "I'm getting hammered" door and voila! Gold is $1500 and climbing $75 a week..and silver..lost in the shuffle ....slams past $25 on a one way trip to $50.......

2008 Dec 02 10:08 PM

[Fliujniligui:]

I prefer to chase stocks than to chase gold

2008 Dec 02 10:13 PM

[Natalie Le:]

Go buy Superfund gold funds. They're up 17-20% ONLY IN NOVEMBER. Their other funds are up 33-70% YTD.
The MD said gold is gonna double to $2000 coz of hyperinflation.
www.youtube.com/watch?...

2008 Dec 03 02:54 AM

[Crank Monkey:]

FDR destroyed the gold standard though confiscation. This is no longer an issue, so there's no particular reason for the government to take gold rather than wages, bank and brokerage accounts, or real property.

2008 Dec 03 11:18 AM

[Gaucho:]

With the disconnect between physical gold and the NIMEX it is evident that the FED is manipulating the price via its banks and the paper market. But with China looking to expand its real holdings of gold it will be fun to watch delivery demand for tons of Gold that they currently do not have. I wonder if the FED is willing to let go of all of its fort Knox holdings.

2008 Dec 03 12:02 PM

[junkyarddog:]

I don't know what it's going to happen to gold. What I know is that FUD (Fear Uncertainty Doubt) is the best seller. It worked well for oil for a while (i.e. peak oil theory, wars over oil, you name it). We see the same thing now being played on gold.

It's possible gold will rise, but it's also possible gold will drop as many people -- believe it or not -- still see safety in the US dollar. I just question the "author's" motive for this doomsday scenario, predicting even nuclear wars. A bit of desperate sales pitch, don't you think?

2008 Dec 03 03:23 PM

[DavidtheGrim:]

I think it would be a better punt to invest in its producers as gold miners have been severly hammered without serious downturn in the physical price, definately more upside to follow for gold miners. This has to play out.

To watch: GDX and HUI (showing a traditional 'W' bottom recently).

DTG

2008 Dec 03 04:45 PM

[Mr. Hamilton:]

Citigroup, wait the company whose analyst said Oil futures would hit $200? Or Possibly the same analyst who said Etrade Financial was going Bankrupt.

2008 Dec 04 12:02 AM

[Nostradamus:]

Citigroup just wants to make money by shorting gold. SHORT SHORT SHORT!!!! Gold to $250 an ounce within a year.

2008 Dec 04 12:35 AM

[NOWHEREMAN:]

Duh? Which posters are in the 1930s? Like in two?
Nuff Sed IMO

GS made a call on oil for $150, MS chimed in. But as oil stocks rose, another MS analyst put out a Sell call on all oil stocks. Market manipulation? Of course not, an Oil analyst is not an Oil company analyst. My goodness, collusion? Prove it.

Just an opinion on all of the analysts which are making contradictory calls just to make a profit on both sides.

IMHO

2008 Dec 08 02:13 PM