Gold to $2,000 by 2009? Citigroup Thinks So

With significant turmoil in the financial markets around the world, some analysts are thinking gold will skyrocket as investors flee to safety. One such prediction from Citigroup (NYSE: C) pegs gold at $2,000 per ounce - roughly 150% higher than today’s $800 per ounce.

As Professional Investment Advisors, it’s our duty to understand the global economic forces at work on our client’s portfolios. In these historic times, this is especially true. Normally we don’t put much stock in analyst opinions, especially Citigroup opinions, but we feel this particular analysis hit’s the nail on the head. It’s also interesting how this is only reported on an European news site. Not surprising at all, really. Here’s an excerpt from the article:

The bank [Citigroup] said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

“They are throwing the kitchen sink at this,” said Tom Fitzpatrick, the bank’s chief technical strategist.

“The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

“Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes,” he said.

“This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised.”

“What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We’re already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore,” he said.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. “If true, this is a very material change,” he said.

It might be time to check out Yamana Gold (NYSE: AUY), Kinross Gold Corp (NYSE: KGC), and GoldCorp (NYSE: GG) or any number of individual gold stocks. If you’d prefer to track the performance of gold directly, which is generally seen as the least risky play, you can buy shares of the SPDR Gold Shares ETF (NYSE: GLD).

Freund Investing Managing Member Ryan Freund holds no position in any of the companies mentioned in this article. Freund Investing has a solid Disclosure Policy.