What scenario will cause the world gold price to rise to 3,000 USD?

Gold prices could rise 50% to $3,000 an ounce in 12-18 months if the global economy deepens and central banks increase purchases, according to Citi Bank.

The world spot gold price is currently trading at $2,016 an ounce, significantly lower than the historical peak of $2,135 in December 2023. However, analysts at Citi Bank believe that gold could reach $3,000 an ounce in the next 12-18 months.

According to Aakash Doshi, head of commodity analysis for North America at Citi, the most likely scenario for gold to reach $3,000 an ounce is an acceleration of de-dollarization by central banks in emerging markets. This could double central banks’ gold buying power. Currently, jewelry remains the main driver of gold demand.

"This trend is happening, but it is quite slow. If it accelerates, it will cause a crisis of confidence in the dollar," said Aakash Doshi.

Gold bars at a gold refinery in Corum, Türkiye. Photo: Reuters — Gold bars at a gold refinery in Corum, Turkey. Photo: *Reuters*

Central banks have been buying gold at record levels over the past few years as they seek to diversify their reserves and reduce credit risk, Citi said. China and Russia have been the biggest buyers, followed by India, Türkiye and Brazil.

A January report by the World Gold Council (WGC) showed that central banks had net bought more than 1,000 tonnes of gold for the second consecutive year. “If that number doubles to 2,000 tonnes, we think that will be a big boost for gold prices,” Doshi said.

A deep global recession could also push the precious metal to $3,000, as this scenario could prompt the US Federal Reserve to cut interest rates aggressively. "Interest rates could fall to 3%, or even 1%, which would send gold to new highs," Doshi said.

However, he said this was only a low probability scenario.

Gold prices tend to move inversely to interest rates, since the precious metal does not pay interest. When interest rates fall, gold becomes more attractive compared to fixed-interest instruments, such as bonds.

The benchmark interest rate in the US has been maintained around 5.25-5.5% for the past 8 months. This is the highest level since 2001 - after the dotcom bubble burst. Markets are now predicting the Fed will cut interest rates in May or June.

Stagflation (slow growth with inflation) could also be another driver. Gold is considered a safe haven during times of economic and political turmoil. Investors tend to turn to the precious metal, away from risky assets like stocks, during these times.

Still, as above, Doshi said this scenario has a "very low probability."

Under normal conditions, Citi forecasts the average gold price to be around $2,000 in the first half of the year and to reach $2,150 in the second half of 2024. The bank expects that by the end of the year, the price will likely reach a new peak.

Ha Thu (according to CNBC, Reuters)