Citigroup says gold could rise above $2,000 next year as world unravels
Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world's monetary system with liquidity, according to an internal client note from the US bank Citigroup.
By Ambrose Evans-Pritchard
26 November 2008
The bank 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.
Mr Fitzpatrick said Britain had made a mistake selling off half its gold at
the bottom of the market between 1999 to 2002. "People have started to
question the value of government debt," he said.
Citigroup said the blast-off was likely to occur within two years, and
possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is
well off its all-time peak of $1,030 in February but has held up much better
than other commodities over the last few months – reverting to is historical
role as a safe-haven store of value and a de facto currency.
Gold has tripled in value over the last seven years, vastly outperforming
Wall Street and European bourses.
From www.telegraph.co.uk