Citi cuts gold price target to US$3,300 on growth optimism, waning safe-haven demand

Gold prices have pulled back from recent highs and may struggle to regain momentum as improving economic conditions weigh on demand for safe havens, according to Citi.

The investment bank lowered its near-term price target for gold to US$3,300/oz from US$3,500, which is in-line with current levels.

Gold price chart | Source: TradingView

Market Dynamics Shift

Gold hit a record close of US$3,433 on June 13 during escalating tensions between Iran and Israel, building on a brief US$3,500 in April.

However, prices have since retreated around 4% as Middle East tensions eased and global growth prospects improved, despite typically supportive factors like lower US interest rates and a weaker US dollar.

"We may have already seen the highs at US$3,500/oz in late April as gold market deficit is peaking soon if not already," Citi analysts wrote in their research note.

They expect gold prices to be relatively rangebound at US$3,100 to US$3,500 during the third quarter, with prices potentially falling further to US$2,500-$2,700 by the second half of 2026 - representing a 21-25% decline from current forward pricing.

Policy Changes Could Dampen Demand

Several upcoming policy developments could reduce gold's appeal as an investment hedge.

Citi points to the expected passage of the "One Big Beautiful Bill Act" (OBBBA) and potential trade agreements with major partners as factors that could boost confidence in US economic growth.

The research team highlight multiple factors that could further weigh on gold demand:

• Economic Stimulus: The OBBBA is expected to provide a net boost to the US economy, particularly benefiting manufacturing and middle-income earners, with costs offset by tariff revenues.

• Trade Relations: Limited trade deals with China and the UK have already been completed, with similar agreements likely for other major trading partners through August.

• Federal Reserve Policy: While the Fed is expected to begin cutting rates again in September with five cuts bringing rates to neutral by March 2026, this may initially support gold before eventually reducing its appeal.

• Energy Market Stability: De-escalation in Middle East oil supply risks could lower energy prices by about $10 per barrel, supporting broader economic confidence.

Investment Implications

Citi's analysis suggests the gold market deficit will peak in the third quarter of 2025, with the market weakening thereafter due to declining investment demand from the fourth quarter.

The bank "strongly recommends" gold producers consider hedging against potential price declines from current levels, given their forecast for significant downside risk over the next 18 months.

Key risks to this bearish outlook include major tariff escalations, renewed geopolitical tensions, or concerns about a US economic hard landing or stagflation - scenarios that would likely boost demand for gold as a safe-haven asset.

For now, Citi sees the global activity and risk environment broadly favoring traditional risk assets over gold as economic conditions stabilise and policy uncertainty diminishes.