Capital Gold Group Report: Citigroup forecasts $950 gold and a strong rebound 4Q in metal prices

Gold may rebound from the latest slump and rally through 2010 as fabrication demand rises and on expectation the dollar will resume its slide against the euro, Citigroup Inc. said. It forecasts the metal will average $950 next year and $1,000 in 2010.

13 August 2008 @ 02:13 am EST

Citigroup's Australian metal analysts Tuesday urged investors and mining companies to look through the current "haze of negativity" and expect to "see a strong rebound" in metals prices and mining stock in the fourth-quarter 2008 and 2009.

"A friendless mining sector is in need of a lifeline having pulled back 25% from the May peak, Citigroup analysts Clarke Wilkins and Matthew Hope admitted, adding that global growth is "undeniably slowing."

Noting that the gold price is only down 7% in Australian dollar terms, the analysts declared, "We remain bullish on gold with a 2009 price forecast of US$950/oz driven by a return of fabrication demand after the price correction, wealth effects in developing nations and negative real interest rates."

Meanwhile, the analysts advised that "the underlying driver of commodity intensive infrastructure investment in developing countries remains unchanged. Short-term risks remain, but the opportunities are there for investors/corporates that can look through the haze of negativity."

In their research, Wilkins and Hope noted that "the Super Cycle bull market for commodity stocks that has been underway since early this decade has not been a one way street, with a number of meaningful corrections that have tested the resolve of the market. "

"Trading these spikes and troughs in the mining stocks is not without risks, but is undeniably a highly rewarding strategy for those that are nimble enough and have the courage to look through the current negative haze surrounding the sector."

The analysts suggested that "the only reason for not stepping up and buying the sector after this [recent] correction is a belief that the cycle is not well and truly over and commodity prices will fall further." Citigroup believes growth in China is still the nation's number one priority. "This point is critical as China is after all the key driver of the commodity Super Cycle."

Citigroup suggests that the Olympic Games now ongoing in Beijing are confusing China's economic picture due to curtailments of manufacturing, transport congestion, steps to ensure no interruption of power and clear skies, which in turn, distort short-term economic data. "Economic policy post the Olympics will be key. It seems likely that the government will continue to selectively stimulate," the analysts advised.

"With a number of commodities entering price levels where China has traditionally restocked, particularly copper, we expect to see a strong rebound in prices and stocks in 4Q08 and 2009."

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