With the retreat of safe-haven demand and the Federal Reserve's shift, is gold starting its downward path?

This year's soaring gold prices may be approaching a turning point.

According to news from the Chasing Wind Trading Desk, a team led by Citigroup analyst Maximilian Layton in its commodity outlook report predicts that gold prices will fall below $3,000 per ounce in the coming quarters, marking the end of this record-breaking rally.

The report clearly states that gold prices have risen to nominal and real levels, decoupling from the marginal cost of gold, and may soon welcome the "final brilliance."

Citigroup expects that gold prices will peak in the third quarter of this year (between $3,100 and $3,500 per ounce) before gradually retreating, with prices expected to fall to the range of $2,500 to $2,700 per ounce by the second half of 2026, a decline of about 20-25% from current forward prices.

Shift in U.S. Policy Will End Safe-Haven Demand, Leading to a Drop in Gold Prices

The report outlines three scenarios for gold price movements. In the baseline scenario (60% probability), gold prices will remain above $3,000 per ounce in the next quarter before gradually declining.

The bullish scenario (20% probability) suggests that if concerns over tariffs, geopolitical tensions, and stagflation risks intensify, gold prices may reach new highs in the third quarter. The bearish scenario (also 20% probability) indicates that if tariff issues are resolved quickly, gold prices will experience a sell-off decline.

In the short term, gold is expected to maintain a high price level in the third quarter, primarily supported by strong investment demand.

The report points out that the rise in gold prices is mainly driven by concerns over tariffs, Federal Reserve policies, and geopolitical risks, rather than central bank purchases. Additionally, the resilience of jewelry consumption also supports prices.

Data from the report shows that global gold expenditure as a percentage of GDP has reached 0.5%, the highest level in the past half-century, indicating a strong preference among investors for gold as a safe-haven asset.

In the medium to long term, Citigroup believes that the core logic behind the decline in gold prices lies in the decrease in safe-haven demand.

The report notes that in the fourth quarter, global growth confidence may slightly improve, especially after the implementation of the U.S. stimulus budget, which will weaken safe-haven sentiment; as Trump's trade policies shift to a more moderate stance, the market's uncertainty premium will also decrease. Furthermore, the expectation of the Federal Reserve shifting from a tightening policy to a neutral stance may further diminish gold's appeal as a non-yielding asset The report shows that data from the past 55 years indicates that when investment demand declines, gold prices also fall, primarily because price adjustments stimulate a reduction in jewelry consumption while encouraging inventory holders to sell.

Bullish Outlook for Industrial Metals in the Medium Term

In stark contrast to gold, Citigroup remains structurally bullish on the medium-term outlook for industrial metals, despite facing pressures from tariffs and weak demand in the short term.

The aluminum market is particularly favored by Citigroup.

The report emphasizes that aluminum is a "future-oriented" metal, constrained on the supply side by energy intensity, while the demand side is strongly driven by artificial intelligence data centers, humanoid robots, and decarbonization processes.

Citigroup expects that at current price levels, there will be an aluminum supply shortage in the next five years, requiring prices to rise above $3,000 per ton to incentivize sufficient supply growth