Citigroup sees $2,000 gold next year

The $10 trillion of financial bailout policies in progress around the world will result in gold exceeding $2,000 an ounce, according to an internal client note from the US bank Citigroup obtained by The Daily Telegraph.

It argued that radical policy options being taken by governments would end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

‘They are throwing the kitchen sink at this’, Tom Fitzpatrick, the bank’s chief technical strategist told The Daily Telegraph. ‘The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

‘Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes.

Political instability

‘This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised.

‘What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We’re already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore’.

The Daily Telegraph reported that gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies.

‘If true, this is a very material change,’ commented Citigroup’s Fitzpatrick saying that blast-off was likely to occur within two years, and possibly as soon as 2009.
Order my book online from this link