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Citi

Gold ETF Inflows Could See a Comeback in September

  • As the USD index dropped by ~10% from its peak in March, the Bloomberg Commodity (BCOM) index gained by ~20%, led by the precious metals sector (up by over 50% from the trough in March). During the four periods since the Global Financial Crisis when the USD index dropped more than 10% from peak to trough, precious metals were among the best performing sectors with an average annualized return of 50%.

 

  • Following robust gold and record silver buying of 155t and 93t respectively in July, the pace of ETF inflows has slowed to multi-month lows in August (as of 24 August). However, Citi analysts expect inflows to rebound sharply in September, into and after the US Federal Reserve’s meeting, as a high unemployment rate keeps policy accommodative, and as US political uncertainty grips markets. In particular, Citi analysts upgrade their 2020 gold ETF demand forecast from an all-time high of 1,000t to 1,300t.
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  • While nominal gold prices are near a record, inflation-adjusted gold prices around US$800/oz remain ~25% below the 1980 peaks of US$1,000/oz. As Citi analysts remain bearish on the USD, this could also benefit the metals sector and copper and platinum-group metals could rally along with the precious metals. Citi analysts have upgraded their 0-3 month and 6-12 month gold point-price targets to US$2,200/oz and US$2,400/oz respectively. Gold prices are expected to average US$1,750/oz in 2020, rising to US$1,965/oz in 2021.

 

  • Overall, Citi analysts see the ongoing gold bull cycle as driven by global monetary policy easing as low policy rates and negative real yields have reduced the opportunity cost of holding a non-coupon bearing instrument like gold. Gold also remains a good tail risk hedge during period of crisis and asset market turmoil.

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