Citigroup has issued a warning that gold valuations have entered an extreme zone, with global gold expenditure as a percentage of GDP soaring to 0.7%, the highest level in 55 years. Should the allocation to gold revert to the historical norm of 0.35%-0.4% of GDP, the price of gold faces the risk of being "halved."
As the Russia-Ukraine conflict is expected to reach an agreement in the second half of 2026, coupled with an improving US economy and the reaffirmed independence of the Federal Reserve, a collective fade in safe-haven sentiment could remove the final pillar supporting gold prices. Against a backdrop of tightening global liquidity and concurrent declines in Bitcoin and other commodities, the previously surging gold market now confronts a severe revaluation of its worth.
In its latest commodity research report dated January 30, Citi Research pointed out that the current gold price has already severely priced in future uncertainties. Maximilian Layton, the bank's Global Head of Commodities, believes that while gold prices may still have room to rise further in the short term, their valuation has reached "extreme levels." As safe-haven sentiment collectively fades in the second half of 2026, the "pillar" supporting gold prices could face a structural collapse.
Multiple historical indicators are flashing red signals for valuation. Citi's report, through multi-dimensional modeling, demonstrates the bubble-like characteristics of the current gold price. Firstly, there is a decoupling from the real economy: the annual global expenditure on gold as a percentage of GDP has surged to 0.7%, the highest level in the past 55 years, far exceeding the period of the 1980 oil crisis. Simultaneously, the current gold price has completely detached from the marginal production costs of the mining industry.
The research report indicates that the profit margins of high-cost gold miners are at their highest level in 50 years. Even against a backdrop of extreme inflation expectations, the ratio of gold to global broad money supply has risen to 16%, surpassing even the peak during the first oil crisis in the early 1970s. Citi emphasizes that once the shift in wealth allocation is complete, gold will revert to equilibrium pricing based on savings allocation.
"If the allocation to gold merely returns to the historical norm as a percentage of GDP (0.35%-0.4%), all else being equal, the gold price could nearly halve from current levels, falling back to $2,500-$3,000 per ounce." Although Citi's base case price target for 2026 is $4,600, its downside risks are increasing sharply alongside the valuation bubble.
H2 2026 Outlook: Fading Safe-Haven Sentiment is the Biggest Threat. Although Citi maintains a supportive view on gold prices in the short term (0-3 months), with a target price of $5,400-$5,600 per ounce, citing persistently high geopolitical and economic risks, its stance for the second half of 2026 turns distinctly "cautious."
Citi expects that the series of risk factors supporting the current high gold price will subside later this year. Specifically: Geopolitical De-escalation: In its base case scenario, Citi anticipates that the Russia-Ukraine conflict could reach some form of agreement by the summer of 2026, while the situation with Iran is expected to de-escalate. The mitigation of these two major risks would significantly weaken investors' hedging motives.
US Economic "Goldilocks": The Trump administration, during the 2026 midterm election year, is expected to steer the US economy into a "Goldilocks" state (high growth, low inflation), which would diminish the need for portfolio hedging via gold. Federal Reserve Independence: Despite political pressures, Citi expects the Fed to maintain its independence, which is also a medium-term bearish factor for gold prices. The confirmation of Warsh as the next Fed Chair would reinforce market confidence in the independence of monetary policy.
Based on this, Citi predicts that gold prices will begin to retreat in the second half of 2026 and fall further in 2027. In its base case scenario, the gold price is expected to fall back to $4,000 per ounce in 2027; in a bear market scenario (20% probability), the price could plummet to $3,000 per ounce.
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