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Crashing gold price could still rally to record high before year-end: Citi

gold bars fulling to the ground and smashing representing falling prices of ASX gold shares
Image source: Getty Images

Don’t throw in the towel just yet on gold. While the price of the precious metal is tumbling, at least one broker is predicting new highs for gold by December.

If this comes to pass, it will be welcomed news for ASX gold miners as the waning gold price dragged these stocks lower.

The Evolution Mining Ltd (ASX: EVN) share price crashed 4.5% to $5.58, Newcrest Mining Limited (ASX: NCM) share price lost 3.5% to $30.78 and Northern Star Resources Ltd (ASX: NST) share price decline 2.1% to $13.32 in morning trade.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) lost around 1% at the time of writing.

Gold losing its shine as it falls from record high

But gold miners are on the nose as gold continues its retreat after hitting a record high of US$2,070 an ounce just last month. The yellow metal entered correction territory as it lost 10% of its value since and is hovering at US$1,864.

The resurgence in the US dollar is taking the shine off the commodity as they tend to move in opposite directions.

Not only is gold priced in the US currency (which tends to depress the gold price when the dollar is high), but they both compete as a safe haven asset.

Gold’s got the Trump factor

Right now, investors are favouring green over yellow, but Citigroup doesn’t think this will last. It’s all thanks to US President Donald Trump, who is fighting for re-election this November.

There’s every reason to think that Trump won’t hand over the reigns of power if he’s defeated at the ballot box.

That means the US could enter into a period of political turmoil that could send tremors through the world’s largest economy and financial markets.

Risk not priced into the market

Citigroup believes investors are under appreciating this risk which could send gold surging to a new high, reported Bloomberg.

“[The election] could be an extraordinary catalyst for gold flat price and volatility skew late in the fourth quarter, even though historically there is no clear pattern for gold trading or price volatility into and after U.S. elections,” said Citi.

“That is one reason why we expect gold prices to hit fresh records before year-end.”

Other golden tailwinds

What’s more, the US dollar strength may not last as the country is failing dismally at controlling the COVID-19 outbreak.

The impact of the pandemic is yet to be fully felt by consumers, but that could quickly change.

Also, the extended period of zero interest rates will provide a floor to the gold price, in my view.

This bull run isn’t over and it’s too early to go underweight on gold or ASX gold miners.

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Motley Fool contributor Brendon Lau owns shares of Evolution Mining Limited and Newcrest Mining Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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