Citi Research raises 3-month gold price forecast to record $2,800 per ounce

Citi Research has raised its three-month forecast for gold prices, citing a weaker labor market in the US and more rate cut expectations by the Federal Reserve. 

The bank has raised its three-month forecast for gold to $2,800 per ounce from $2,700 per ounce previously. 

Additionally, the 6 to 12-month forecast for gold prices was at $3,000 per ounce, the bank said. 

As for silver, the bank sees prices at $40 per ounce for the 6-12 month period from $38 an ounce previously. 

“We note that gold and silver have performed extremely well despite weakening China retail physical demand and rising US interest rates since the Fed cut 50 (basis points) and payrolls beat last month,” Reuters quoted Citi Research in a report. 

Gold hovers near record highs

Gold prices remained near record-high levels on Tuesday buoyed by rate cut optimism and uncertainties surrounding the US elections. 

The December gold contract on COMEX rose to a record high of $2,755.40 per ounce on Monday. At the time of writing, the yellow metal was at $2,750.50 per ounce. 

“Gold is one of this year’s strongest performing commodities, with gains of more than 30% so far, supported by rate cut optimism, strong central bank buying, and robust Asian purchases,” Warren Patterson, head of commodities strategy at ING Group, said in a note. 

“We believe the macro picture combined with safe-haven demand amid an escalation of tensions in the Middle East and the ongoing war in Ukraine will drive gold to new highs,” Patterson added. 

Geopolitical tensions boil

At the weekend, a Hezbollah-operated drone exploded near Israel Prime Minister Benjamin Netanyahu’s private residence. This has led to increased expectations that Israel is planning a large-scale attack on Iran. 

The commodities market has been on tenterhooks since October 1, when Iran fired ballistic missiles toward Israel. 

Geopolitical risks and safe-haven demand for gold increased significantly, following the attack as investors waited for Israel’s response. 

Recently, Israel assassinated the leaders of Hezbollah in Lebanon and of Hamas in Gaza, while showing no signs of reining in its ground and aerial offensives, according to a Reuters report. 

Escalating tensions bode well for gold as it is considered a safe-haven asset. Traders invest more in commodities such as gold during times of duress. 

US rate cut expectations

Gold also tends to perform well when interest rates are lower. 

The US Federal Reserve is expected to cut interest rates by 25 basis points in November, However, at the beginning of the month, expectations were for a 50 bps cut. 

Traders now see an 87% chance of a 25-basis-point cut by the US Federal Reserve in November, according to the CME Fedwatch tool.

In its September meeting, the Fed had cut interest rates by 50 bps, surprising the market. 

Hotter inflation in the US and a resilient labor market had prompted traders to scale back expectations of a larger rate cut in November. 

Though the November rate cut is likely to be smaller in percentage terms, any kind of cut in rates boosts sentiments as gold is a non-yielding asset, unlike bonds.