Is The Gold Price Worth $2500?

The precious metal broke above $2000 in mid-August, only to fall below that level, with Citigroup setting a price target of $2500 for gold. But with the commodity struggling to push higher is it really worth $2500 an ounce?

(September 3, 2020 - Aaran Fronda)

• prices to trend higher
• Citigroup sets gold price target of $2500
• US dollar begins to mount a modest recovery against a broad basket of currencies

Gold has traded sideways over the last few sessions, but is likely to push above $2000 again after US Federal Reserve chairman Jerome Powell’s remarks at last week’s Jackson Hole Symposium, where he refused to rule out further action to support the American economy.

However, the price of the precious metal has failed to rally, with the US dollar finally stabilizing against a broad basket of currencies. But the amount of money being printed by the EU, China, the UK and the US in a bid to support people and businesses impacted by the coronavirus will inevitably push gold prices higher after investors are done taking profits.

US dollar mounts modest recovery

GBP/USD declined to 1.3300 as the US dollar finally begins to mount a recovery, pushing gold lower, as traders appear to finally take notice of the potential economic impact a no-deal Brexit could have on the UK economy.

Gold has moved lower once again this week, following a rally into the 76.4% Fibonacci resistance level at $1989, according to Josh Mahony, senior market analyst at IG.

‘That takes us back into a confluence of support, with an ascending trendline and 76.4% Fibonacci coming into play today,’ he said.

‘Given the symmetrical triangle in play here, it looks likely we will see a turn higher to continue that pattern. That bullish view holds unless we see a breakdown below the $1903 swing-low.’

Citigroup sets $2500 target for gold

The precious metal hit a high of $2075 an ounce at the start of August, only to fall below $2000 shortly after, though gold continues to flirt with the psychological benchmark and is likely to push to higher highs in the months ahead, according to analysts at Citigroup.

‘When investors are hungry for gold, the metal has a habit of rising exponentially which has no parallel amongst metals,’ Citigroup analyst Heath Jansen said in a note to investors.

‘On a worst-case scenario for euro sovereign debt and US fiscal problems, we believe gold could repeat the extent of the 1970-1980 gold bull market, implying upside-risk to above $2500 an ounce.’

‘A short-term (but not long lasting) large spike in gold is still possible in our view,’ he added. ‘We would now rate that probability as above 25%, up from below 5% just weeks ago (because of increased sovereign financial issues), and growing.’