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Commodities: The End of the Bull Cycle in Gold

  • Citi analysts expect that gold prices could mostly hover between US$1,700-$1,900/oz range for the balance of the year and average US$1,800/oz in 2021. Citi analysts see several peak cycle risks for the bullion market. These include risk of the US Federal Reserve tapering asset purchases by end-2021 and more aggressive short-term interest rate trading pricing for policy rate lift-off in 2022/2023 which may in turn be USD supportive. In addition, the rise in 10-year Treasury yields this year is also a headwind for a long duration zero coupon asset like gold. A risk asset and commodities reflation narrative amid a COVID-19 vaccine trade could also favor inflows into oil, copper and other markets versus gold.


  • Though not a primary driver for day-to-day gold trading, supply/demand balances for the yellow metal could be in hefty surplus this year. Hence, the absence of investor inflows can bolster the inventory overhang, capping gold market cheer. Lackluster financial gold buying further emphasizes the importance of retail jewelry, bar/coin, and central bank consumption this year. While demand for all three may grow in 2021 compared to 2020, it is likely to remain below 2018/2019 levels. This comes as mine production is rebounding from COVID-19 shut-ins in 1H 2020 and gold recycling activity has ticked-up, bolstering total supply. A rotational shift into crypto assets by some retail and institutional investors looks to be exacerbating gold price weakness and the recent pace of outflows.




  • In 2019, Citi’s Global Investment Committee (GIC) added gold as a tactical overweight on plunging global interest rates and gold has risen 16% over the period. With long-term yields reversing their plunge after gold has appreciated sharply, the GIC has eliminated the overweight in gold and is now neutral. The case for gold as a long-term strategic holding is improving among real assets generally, as central banks target a higher inflation rate to ease debt burden. However, like long-duration bonds, gold is a tactical performance risk when market interest rates rise.


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