Citigroup Says Gold Will Benefit from Monetization and Muddle-Through and Doom & Gloom Scenarios

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Should the U.S. lapse into deep recession with spillover to BRIC countries, Citigroup suggests that "gold and precious metals would prove to be one of the few safe heavens for capital preservation particularly given likely low to negative real interest rate in this scenario. In this case we would expect gold to double or triple from current level."

The optimism generated by the U.S. financial bailout and a sounder U.S. dollar may mute gold prices in the near term, but Citigroup analysts expected to gold to work its way higher through 2009/10 with average forecasts of $950/1000 per ounce.

Citigroup North American metals analyst John H. Hill continues to see copper "as well-positioned due to supply-side constraints, which span shortfalls at current mines, delays at mega-projects, and contract cancellations by governments."

In an analysis published Sunday, Hill noted, "Gold is being tugged in opposite directions by potent new investment demand, and uniformly dour sentiment for industrial metals amid dis-inflationary datapoints and a firmer dollar. These negatives may come into sharper focus after passage of the U.S. financial bailout but will likely prove ephemeral."

"We see gold as mispriced and a beneficiary in either the ‘Monetization and Muddle-Through' or ‘Gloom & Doom' scenarios. Physical off-take remains brisk, while central banks sales and mine output are running light," he added...

Should the U.S. lapse into deep recession with spillover to BRIC countries, Citigroup suggests that "gold and precious metals would prove to be one of the few safe heavens for capital preservation particularly given likely low to negative real interest rate in this scenario. In this case we would expect gold to double or triple from current level."

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