Wall Street's "Gold Bears": Gold prices peaked this year and will start to decline next year?

Citigroup issues a stunning warning - the current gold bull market may soon peak.

According to the Chase Trading Desk, Citigroup analysts Maximilian Layton and Kenny Hu pointed out in their latest report that while gold prices are expected to continue fluctuating in the range of $3,100 to $3,500 per ounce in the second half of 2025, the long-term outlook is not optimistic, with a significant correction expected in 2026-2027.

This judgment is based on two key logics: the easing of global economic concerns will weaken safe-haven demand, and household gold holdings have reached their highest level in fifty years. Does this mean that the current high point is the best time to take profits?

Gold investment frenzy reaches historical peak: 0.5% of global GDP is spent on gold

Citigroup's data shows that current global gold demand is "fully ignited," with about 0.5% of world GDP being used to purchase gold, the highest level in half a century. This proportion even exceeds the gold rush during the second oil crisis in 1980.

Maximilian Layton, head of global commodities at Citigroup, pointed out that this unusually high demand reflects extremely high levels of uncertainty driving investment demand, which is primarily driven by "3D factors":

• Concerns about the deterioration of the U.S. and global economic growth,
• Concerns about the debasement of the U.S. currency,
• Diversification away from the dollar in global central bank reserves.

Citigroup's data shows that the demand for investment gold bars and coins currently reaches a scale of $350 to $400 billion annually. This demand comes not only from central bank purchases but also from ultra-high-net-worth individuals and retail investors, reflecting deep concerns in the market about high interest rates and the rising interest costs of the U.S. government.

Household gold holdings reach a fifty-year high, demand resilience has hidden risks

Citigroup's research found that the proportion of gold jewelry and gold bars and coins in household net wealth has risen to a historical high of 3%, the highest level in fifty years, doubling compared to the past five years.

From a regional distribution perspective, the proportion of gold in household net wealth in India has surged from 7-9% three years ago to 15-18%, while in China it has risen from 1.5% to 3%, and in other regions outside of China and India, it has increased from 1.25% to 2.5%. Citigroup specifically pointed out that the value growth of India's gold stock is approximately equivalent to one-third of its annual GDP, increasing from $1.3 trillion to $2.6 trillion When market participants are "extremely long" on a particular asset, it usually signals an impending price reversal. Citigroup believes that this extremely high position level could become a catalyst for price declines: "High prices are likely to be the antidote to high prices." As ultra-high-net-worth individuals and other relatively affluent households already hold a large amount of gold, their future purchasing volume may decrease.

Although Citigroup acknowledges that current jewelry demand has shown remarkable resilience relative to rising prices, this is mainly because "a recession has not actually occurred at present." However, Citigroup warns that the supply of jewelry scrap will increase significantly. Considering that the global jewelry stock is about 100,000 tons, a mere 0.5% increase in scrap recovery rate could generate 500 tons of supply, equivalent to 15% of mineral supply.

In addition, Citigroup believes that gold producers are enjoying the highest profit margins in fifty years, with a huge gap of up to $2,000/ounce between the 5-year forward price and the 90th percentile all-in cost of production. This extreme profit level is historically unsustainable.

Two Core Logic Points for Long-term Decline

Citigroup's cautious outlook on the long-term prospects for gold prices is primarily based on two key factors:

First, current demand is largely a hedge against risk. Citigroup points out that the significant increase in gold demand over the past three years mainly reflects concerns about the potential impact of high U.S. interest rates and tariff policies on global growth and stock prices. In Citigroup's baseline forecast, these concerns are expected to ease by 2026, as the U.S. midterm elections will incentivize pro-growth policies, and the Federal Reserve's interest rate cuts will improve global growth expectations and reduce government deficit worries.

Second, declining interest rates will directly suppress gold forward prices. Citigroup's calculations show that for every 1% decrease in interest rates, the 5-year forward gold price will drop by about $200/ounce. Citigroup notes that the current 5-year forward gold price is trading around $4,000/ounce, which is about 20% higher than the spot price, marking the highest premium level in nearly twenty years.

Short-term Range Fluctuation, Long-term Cautious Bearish Outlook

Citigroup expects gold prices to continue to consolidate around current levels in the second half of 2025, raising the strong range trading opportunity from the previous $3,000-$3,300/ounce to $3,100-$3,500/ounce.

Citigroup states that against the backdrop of the world digesting U.S. tariff policies, high geopolitical risks, increasing budget concerns, and a stable economy, gold prices are expected to remain high.

However, regarding the long-term outlook for gold, Citigroup maintains a cautious stance, predicting that after 2026, gold prices will face significant downward pressure, far below the market's general expectation of a forward curve level of $3,600-$3,700/ounce over the next five years.