Citi raises gold price target to $3,500 as demand rises

Citi Research has revised its gold price target for the upcoming three months to $3,500 per ounce, up from $3,200. This adjustment reflects increased gold purchases by Chinese insurers and heightened demand due to safe-haven flows amid tariff concerns and market uncertainties, according to news agency Reuters.  

Analysts at Citi explained, "We think gold is likely to be in an extremely rare physical deficit at present, meaning prices need to rise in order to get stockholders to sell to clear the market." This shortage spurs a potential price rise to encourage stockholders to offload their holdings.

The bank highlights that gold investment and industrial demand are expected to climb to 110% of mine supply in the second quarter, marking the highest level since the global financial crisis. Emerging market central banks, prominently China's, are intensifying their gold purchases. Additionally, investor interest through exchange-traded funds and over-the-counter markets is gaining traction due to concerns over global and U.S. growth, said the Reuters report.

Citi's report also notes that China's recent policy to permit ten insurers to allocate up to 1% of their assets to gold could result in an annual demand of approximately 255 metric tons, enhancing the demand landscape.

Further measures by China include the approval of new import quotas and reopening the gold import arbitrage window, following recent U.S. tariff announcements. This move is expected to boost imports significantly over the coming months. "The prospects of further expansion in insurance gold buying imply further upside potential in China gold demand," Citi stated.

Consequently, Citi has adjusted its average gold price forecast for the second quarter to $3,250 per ounce, citing tightening supply conditions and increased demand,  Reuters reported.  As the dollar weakens and interest rates are anticipated to decline, producers might find opportunities to secure robust future margins given the gap between current forward prices and production costs around $2,000 per ounce.