Citi stated that gold has reached historically 'expensive' levels across five dimensions, including its share of GDP and household wealth. Nevertheless, the future trajectory of gold remains highly uncertain. The bank believes that under the base scenario (50% probability), gold prices will retreat to USD 3,650 by 2026. However, in a bull market scenario (30% probability) triggered by structural risks, gold prices could surge to USD 5,000.
Against the backdrop of this year's record-breaking gold prices, a latest gold outlook report from Citi has provided a sobering perspective for the frenzied market. The core conclusion of the report is that, despite the continued existence of long-term structural demand, gold's valuation appears to be "expensive" from multiple dimensions, and investors should prepare for future price volatility.
This research report, published on November 10, analyzed that gold's valuation has reached or is approaching historical extremes across five key dimensions, sending a clear warning signal to the market.
The proportion of global annual spending on gold relative to global GDP has climbed to approximately 0.55%, the highest level in the past 55 years.
The value of gold held by the private sector (including jewelry, bars, and coins) as a proportion of global household net wealth has reached about 3.5%, marking an all-time high.
The share of gold in global central banks' foreign exchange reserves has approached 35%, reaching its highest point since the mid-1990s.
As a measure of monetary value, the ratio of the total value of global gold stockpiles to global broad money supply (M2) is nearing the historical peak seen during the second oil crisis in 1980.
Benefiting from the soaring gold prices, profit margins for gold miners have reached their highest levels in 50 years.
These data collectively point to one conclusion: whether viewed from the perspectives of macroeconomics, household asset allocation, central bank behavior, or industry profits, the relative price of gold is at an extreme position. The report emphasizes that such a level of allocation is historically rare.
We estimate that... global gold expenditure as a percentage of GDP has exceeded 0.55%... the highest rate in 55 years of data... The value of above-ground gold stocks held by households has risen to 3.5% of global household net wealth, surpassing the proportion in household wealth in 1980.
2026 Outlook: A Cautious Base Case with Potential for Significant Volatility
Despite elevated valuations, Citi believes that the future trajectory of gold is far from unidirectional and hinges on the interplay between cyclical concerns and structural risks.
The base case scenario (50% probability) forecasts that gold prices will retreat to $3,650 by 2026. The core rationale is that as the U.S. economic environment improves, investor fears of a recession will diminish, reducing gold's appeal as a safe-haven asset. A 'Goldilocks' economy characterized by robust growth and controlled inflation typically favors industrial metals and equities over gold. The report explains:
“In this ‘Goldilocks’-style U.S. baseline economic environment, interest rate cuts... are more likely to benefit industrial metals and equities rather than gold. A key trigger for a weakening gold market would be a shift (upward) in U.S. growth sentiment and a reduction in real interest rates.”
However, Citi also outlines two other contrasting scenarios for investors. In a bullish scenario with a 30% probability, persistent structural issues such as a U.S. fiscal sustainability crisis or escalating geopolitical tensions could drive continued inflows into gold, potentially pushing prices to $5,000 by the end of 2026 and further to $6,000 by the end of 2027.
Bullish Scenario (30% Probability): Surge to $5,000. If ‘structural concerns’ such as fears of a U.S. fiscal crisis or heightened geopolitical conflicts materialize, gold’s safe-haven properties will be fully ignited. In this scenario, the report predicts that gold prices may rise to $5,000 by the end of 2026 and reach $6,000 by the end of 2027.
Bearish Scenario (20% Probability): Retreat to $3,000. Conversely, if global risks significantly recede and market sentiment improves comprehensively, the currently overvalued price of gold will face substantial downward pressure, potentially retreating to $3,000.
Notably, even under the cautious baseline forecast, Citi has raised its long-term gold price projection. The report acknowledges that concerns around sovereign debt and geopolitics may sustain structural demand over the long term, thus revising the long-term gold price forecast upward from $2,500 to $3,000 (in 2025 dollar terms). This indicates that, in Citi’s view, gold’s role as a long-term store of value has been reinforced, providing a higher bottom support for its price than before.
Editor/Doris
