April 17 (Reuters) - Citi Research on Thursday raised its gold price target for the next three months to $3,500 per ounce from $3,200, driven by fresh gold buying from Chinese insurers and safe-haven flows amid tariff risks and market weakness.
"We think gold is likely to be in an extremely rare physical deficit at present, meaning prices need to rise in order to get stockholders to sell to clear the market," analysts at Citi said in a note.
The bank sees gold investment and industrial demand rising to 110% of mine supply in the second quarter, the highest level since the global financial crisis.
Emerging market central banks, including China's, are stepping up purchases, while investor appetite through exchange-traded funds and over-the-counter markets is also gaining pace due to global and U.S. growth concerns, Citi added.
The bank estimates that China's recent move to let ten insurers allocate up to 1% of their total assets to gold could generate annual demand of around 255 metric tons, equal to roughly a quarter of total global central bank buying.
"The prospects of further expansion in insurance gold buying imply further upside potential in China gold demand," Citi said.
China has also approved fresh import quotas and reopened the gold import arbitrage window after recent U.S. tariff announcements. This is expected to boost imports over the coming months, Citi said.
Citi raised its average gold price forecast for the second quarter to $3,250 per ounce from $3,100, citing rare supply tightness and rising demand.
The bank added that the gap between current forward prices and production costs, around $2,000 per ounce, presents a strong chance for producers to lock in healthy future margins, especially with the dollar weakening and interest rates expected to fall.
Reporting by Sherin Elizabeth Varghese in Bengaluru; Editing by Kirsten Donovan
