Citigroup has expressed a cautious stance on gold's short-term trajectory. The bank's analysis points to reduced investor buying activity, attributed to concerns over risk-off driven selling—a pattern consistent with historical precedents for gold. This is occurring despite robust investment demand and a strengthening Renminbi in China, which have helped sustain the country's gold import expenditures near historically high levels of approximately $300 billion annually, supporting gold prices at elevated levels by historical standards. However, these factors have not offset the primary negative shift: a decline in investment demand, notably in India, with the bank suggesting similar trends in retail markets outside China.
Heightened inflation pressures, stemming from the prolonged closure of the Strait of Hormuz, are fueling market expectations of interest rate hikes by the Federal Reserve. This, in turn, is exerting downward pressure on gold prices through higher real interest rates and a stronger US dollar. Given this environment, Citigroup maintains a cautious near-term view on gold, setting a zero-to-three-month price target of $4,300 per ounce. The bank notes that a significant risk-off event could drive prices substantially below this level.
Citigroup indicates that its cautious stance will persist as long as the Strait of Hormuz remains partially or mostly closed, at least until the market fully prices in this factor. Nonetheless, the bank ultimately seeks to establish long-term buying positions. It anticipates that once tensions in the Strait of Hormuz eventually de-escalate—with its new base case now pointing to July—the current macro headwinds for gold, such as high real rates and a strong dollar, should ease, likely allowing gold prices to find a bottom and rebound.
The bank also considers a scenario, though not its base case, involving a more prolonged closure of the Strait of Hormuz and higher, more persistent energy prices. In such a situation, market fears could shift from "inflation without recession" (given that US high-frequency economic data remains broadly robust) to "stagflation." This would present the worst-case scenario for any central bank. Historically, stagflation periods have seen negative returns for stocks and bonds, while precious metals have delivered very positive returns.
Latest first-quarter data from the World Gold Council shows strong demand for gold bars and coins, resilient jewelry demand, and a rebound in central bank purchases. Meanwhile, demand trends in the world's two largest gold markets, China and India, are diverging due to opposing local policy changes and currency movements.
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