Metals Stocks: Gold continues to surge after inflation shock, but Citi says it may be a winter bull market at best


Gold prices continued to surge on Thursday, following hotter-than-expected U.S. inflation, but Citigroup strategists were warning that fresh momentum for the precious metal may not last beyond winter.

“Should gold prices hold near $1,850/oz this week, new investor inflows are likely to materialize and $1,900/oz could be the next upside target,” said a team of Citi strategist led by Aakash Doshi, in a note to clients late Wednesday.

“However, a stronger US$ and more aggressive Fed pricing in STIR [short-term interest rates] markets are headwinds for gold price cheer, even if the inflation impulse looks robust,” said Doshi.

Read: Why surging U.S. inflation has gold bulls looking for record highs

Gold for December delivery GCZ21, +0.81% GC00, +0.81% rose $15, or 0.8%, to $1,863.50 an ounce, headed for another close not seen in months. On Wednesday, gold surged $17.50, or 1%, to settle at $1,848.30 an ounce on Comex, for its highest settlement since mid-June, according to FactSet data.

The gains came on the heels of a 0.9% jump in consumer prices index, well above the 0.6% that economists expected. Annually, inflation climbed to 6.2%, the biggest jump in over 31 years. There is no data scheduled for Thursday due to the Veterans Day holiday.

“Concerns about more persistent inflation or even the potential for stagflation is buttressing inflation hedge demand for TIPS, gold, and crypto, which could continue thematically in the short-term as November CPI should keep showing underlying strength,” said Doshi and the team.

Gold’s gains coincided with a strong dollar, a move that continued on Thursday. The dollar, as gauged by the ICE U.S. Dollar Index  DXY, +0.22%,  rose 0.2% to 95.053. Dollar strength often weighs on prices for dollar-denominated gold.

Citi lifted its 0 to 3 month gold point-price target by 11% to $1,900 an ounce and its fourth-quarter forecast to $1,800 an ounce from $1,700. But while Doshi said they have priced in a “fat-tail risk” for the commodity to post fresh nominal highs above $2,100 an ounce next year, their base case is bearish for the second half of 2022 through 2023. They expect the Fed will signal a quicker pace of taper at the December FOMC.

December silver prices SI00, +1.16% SIZ21, +1.16% climbed alongside gold, rising 26 cents, or 1%, to $25.03. Silver climbed 1.9% to $24.772 an ounce on Wednesday, the highest most-active contract finish since early September.

Among other metals, December copper  HGZ21, +1.38% rose 1.1% to $4.372 a pound. January platinum PLF22, +1.04%  added 1.3% to $1,090 an ounce and December palladium rose 0.5% to $2,048.50 an ounce.

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