Why Citibank Believes Now Is A 'Once-in-40-Years Investment Opportunity' In Gold?
1min read Citigroup's latest research report identifies three anomalies in the current gold market: spot prices at historic highs, exceptionally high US interest rates, and a relatively strong US dollar.
Under these unusual market conditions, citigroup predicts gold miners' profit margins have reached their highest level in 40 years - what the report calls a once-in-40-years opportunity for gold producers.
The report also forecasts gold prices could reach $3,600 per ounce by Q4 2025, driven by strong investment demand amid concerns about US equities and economic growth.
Three Anomalies Driving Miner Profits
The report highlights that gold producers are currently enjoying profit margins not seen since the 1980s, benefiting from high gold prices and relatively low production costs.
Using 5-year forward prices, gold miners' marginal profit margins have reached 40-year highs, creating enormous profit potential. The 5-year forward gold price projection stands at $3,650 per ounce, with a massive gap above the 90th percentile of full production costs.
This profitability surge stems from three key market anomalies:
1. Historic high spot prices: The 5-year forward gold price is about 20% higher than spot prices - the largest premium in nearly two decades - primarily due to elevated US interest rates.
2. Persistently high US interest rates: These are identified as the crucial factor in maintaining high 5-year forward prices.
3. Strong US dollar: The dollar's strength further contributes to the forward price premium.
The report emphasizes this phenomenon is unique to gold. Unlike commodities like copper and oil where long-term prices typically align with marginal production costs, gold shows a disconnect due to limited producer hedging and strong physical demand from central banks, creating higher liquidity in long-term gold contracts.
Citigroup: New Opportunities in Gold Market
With marginal profit margins at 40-year highs based on 5-year forward prices, gold producers enjoy unprecedented profit potential.
The report notes that expected US interest rate cuts may impact 5-year forward prices, potentially reducing them by about $200 per ounce by year-end.
Additionally, high gold prices may increase jewelry scrap supply. With an estimated 100,000 tons in jewelry inventories, even a 0.5% increase in recycling rates would add 500 tons to supply - equivalent to 15% of mine production.
Citigroup highlights that gold investment now exceeds 90% of mine supply and continues growing, driving prices upward. The $3,600/oz forecast for Q4 2025 reflects sustained strong investment demand, with US stock market performance and growth concerns being key 2025 drivers.
They also predict robust official sector demand, particularly in a potential Trump 2.0 era. Emerging market-driven official demand surged post-Russia-Ukraine conflict and is expected to remain strong.
Ask Aime: What impact does the gold market anomaly have on gold producers?
