Citigroup Sees Gold at $3,500/oz; Silver Jumping to $100/oz

Published in Market Updates  Precious Metals Update  on 29 August 2013

By Mark O’Byrne


Today’s AM fix was USD 1,406.25, EUR 1,059.96 and GBP 906.79 per ounce.
Yesterday’s AM fix was USD 1,425.50, EUR 1,066.03 and GBP 919.91 per ounce.

Gold rose $0.20 or 0.014% yesterday, closing at $1,415.70/oz. Silver ceded some its previous gains and closed down $0.17 or 0.7%, closing at $24.29. Platinum gained $9.45/oz to $1,531.20.


Oil And Gold Prices Since Alleged Chemical Weapons Attack In Syria  - (Bloomberg)

Gold fell from a three month high, its first fall in six days on profit taking after the likelihood of U.S. military strikes on Syria, at least in the short term, diminished. Prices rallied to $1,433.83 yesterday, the highest since May 14, partly due to concern about military action and the risk that it may lead to a deeper, more protracted Middle Eastern war.

Geopolitical risk, emanating from the Middle East in particular, has been underestimated for some time. Since the alleged chemical weapons attack on August 21, oil has risen sharply and gold has received a safe haven bid.

Gold and oil began rising in after-hours trading on the day of the incident and since then gold is up 3.9% and oil is up 5.5% (see chart). From $103.52 per barrel to $109.25 per barrel (NYMEX crude) and from $1,355/oz to $1,408/oz today.

Gold and oil are often correlated particularly when there are sharp movements up in oil prices as was seen in the 1970s and in the period from January 2002 to July 2008 when NYMEX crude oil prices rose from less than $20 a barrel to over $140 a barrel.

An escalation of the crisis in the Middle East and the real possibility that Iran and Israel could become embroiled in the conflict means that there is again the possibility of oil rising to new record highs, with an attendant rise in gold prices.


NYMEX Crude Oil - Generic 1st 'CL' Future - (Bloomberg)

There are also growing concerns that the recent poor U.S. economic data and geopolitical uncertainty will lead to the Federal Reserve not slowing stimulus or ‘tapering.’ A continuation of cheap money policies will be bullish for gold.

Another positive factor for the gold market is the very delicate situation regarding peak gold and supply from South Africa.

In what could be described as a provocative move, gold mining companies in South Africa are considering locking out workers. The aggressive move is being considered if labour unions fail to accept a revised pay offer.

The four unions in the gold industry have until 12 p.m. local time today to accept an offer from the chamber, which represents gold mining companies, to increase the wages of some categories of workers by 6.5%. Workers in the automotive, construction and aviation industries are already on strike to demand pay increases in excess of the considerable inflation rate of 6.3% in July.

The chance of a South African gold strike is ‘highly likely’ said Solidarity Union General Secretary Gideon du Plessis, in a speech in Johannesburg.

Citigroup Sees Gold at $3,500/oz; Silver Jumping to $100/oz
Respected Citigroup strategist Tom Fitzpatrick said in a telephone interview from New York with Bloomberg that gold and silver should surge in the coming years as the precious metals continue to benefit from the easy monetary policies adopted by central banks.

Fitzpatrick, who has a good track record, said that gold has put in a low for the year and will rise to about $1,500-$1,525/oz this year. A gain of over 6.3% from today’s prices.

He said that silver is in a strong uptrend and will likely outperform gold as the gold silver ratio will drop from its current level at 58.1.

Separately, in an interview with King World News’ Eric King, Fitzpatrick elaborated on why he believes gold could reach $US3,500:

“So we believe we are back into that track where gold is the hard currency of choice, and we expect for this trend to accelerate going forward. We still believe that in the next couple of years we will be looking at a gold price of around $US3,500.“

“As the gold/silver ratio plummets near 30, this would also suggest a silver price above $US100.”


Silver in USD - 10 Years, Weekly (Bloomberg)

Despite the recent gains, gold remains down 16% this year and this is leading to contrarian buyers buying gold at what they still see as discount prices.

Gold appears to have bottomed in June and is rising due primarily to strong physical demand for jewelry, coins and bars globally.

Gold is heading for a second monthly gain which is very important technically and from a momentum perspective.

NEWS
Gold futures ease as U.S. dollar extends gains - MarketWatch

Syria crisis sparks rallies in crude oil, gold - Reuters

Gold ends mixed, hits 3-1/2 month high on Syria jitters - Reuters

Austrian Mint Increases Gold Sales as Price Slump Spurs Demand - Bloomberg

COMMENTARY
Gold Poised To Super-Surge 150% & Silver A Staggering 300% - King World News

World Doomed To Endless Cycle of Bubble, Financial Crisis and Currency Collapse - Financial Times

Currency Markets Rigged? Spikes at 4 P.M. in London Provide Rigging Clues - Bloomberg

Greece, Cyprus, Italy, Spain, Portugal & Ireland — Similar to Asian nations back in 1990s - MarketWatch

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