Citigroup suggests that $1000/oz gold could become a reality if a mix of macro and supply demand forecasts sufficiently gel to send gold soaring beyond its historic ceiling of $850/oz.

Author: Dorothy Kosich

RENO, NV - 

Citigroup metals analysts said Monday they are positive on gold "based on a mix of macro and supply/demand forecasts," that could send gold beyond its historic ceiling of $850/oz to as much as $1,000/oz or higher under certain circumstances.

Noting that 2007 is running $62/oz above the 2006 average of $605/oz, analysts John H. Hill and Graham Wark declared that "we would not be surprised to break its historical highs of $850/oz."

The analysts theorized that the policy resolution to the current credit crunch may be "an extended ‘Re-flationary Rescue,' in a new cycle of credit creation and competitive currency devaluations that should be inherently positive for pro-cyclical basic materials, hard assets, oil and gold."

"This could take gold to $1,000/oz or higher," they predicted.

Citigroup hiked gold forecasts for 2009/2010 to $800/$820/oz and long-term valuation to $700/oz. "Within this, a test of $850-$1000/oz is likely," they advised.

Investment Returns with a Vengeance

Citigroup's research suggests that gold is entering a new investment-driven phase as gold market drivers "tend to oscillate between bouts of eastern physical/fabrication demand and western investment demand."

The analysts asserted that "the handoffs back and forth between these demographically distinct buyers, typically over six- to nine-month intervals, continue to define gold's stair-step ascent over the past five years. Investment driven-upside, typically featuring retail investors responding to macro jitters, tend to be violent and shorter-lived. Fabrication support tends to play off in a more muted manner."

Nevertheless, Citigroup feels that "investment has returned with a vengeance. This was driven first by safe-haven demand during the credit crunch and now by greater awareness of gold's critical role in the ‘re-flation trade'. Investment patterns in physical gold are mirrored by the equities."