Citi: Cautious on Gold in the Short Term, 3-Month Target Price of $4300

Citi released a latest research report, pointing out that due to the ongoing closure of the Strait of Hormuz and rising global energy prices, investor buying has experienced marginal reduction, triggering market worries that hedging sentiment may trigger a reverse sell-off in gold.

Therefore, the bank keeps a cautious attitude towards the short-term trend of gold, setting the gold price target for the next 0-3 months at $4,300 per ounce, and warns that if a significant hedging liquidity stampede occurs, the gold price may fall far below this level.

Dual Pressure from Real Interest Rates and Strong Dollar

Citi analysis believes that the core macro headwinds facing gold at present mainly stem from the ongoing deadlock in the Strait of Hormuz, which has triggered supply chain and inflation pressures.

The continuous high energy prices have raised inflation risks. Despite the overall robustness of the U.S. high-frequency economic data, the market's expectations of the Federal Reserve resuming rate hikes or maintaining high-interest rates for a long time are significantly heating up.

This strengthening of rate hike expectations directly drives up the real interest rates in the United States and makes the dollar extremely strong, fundamentally putting heavy pressure on the price of non-interest-bearing asset gold.

Based on these fundamental changes, Citi emphasizes that as long as the Strait of Hormuz remains partially or mostly closed, the bank will continue to be cautious about gold, at least until the market fully digests this negative factor.

Structural Disagreements in Gold Buying

At the level of physical and investment demand, the world's two major gold-consuming markets are showing completely different trends of disagreement.

Thanks to strong investment demand and the support of the appreciation of the yuan, China's expenditure on gold imports remains near the historical high of about $300 billion per year, becoming an important underlying pillar for the gold price to maintain a relatively high level under historical standards.

In contrast, global investment demand outside of China has experienced a substantial decline. Citi speculates that, especially in India and other overseas retail markets, investors' willingness to buy is significantly slowing down due to high real interest rates and geopolitical concerns.

Fundamental Turning Point Expected in July, Beware of the "Worst Case" Turning into Stagflation

Although restrained in the short term, Citi emphasizes that it is ultimately seeking to buy gold at lower prices over a longer term.

According to Citi's updated basic scenario forecast, the situation in the Strait of Hormuz is expected to cool down by July this year. At that time, macro headwinds such as high real interest rates and a strong dollar will be significantly alleviated, and it is very likely that gold prices will hit bottom and rebound at this stage.

Citi cautions against a non-fundamental worst-case scenario. If the closure of the Strait of Hormuz lasts longer than expected, causing high energy prices to become more persistent, market concerns will evolve from the current "no recession inflation" to the stagflation that all central banks dread.

Looking at historical patterns, in stagflationary periods, traditional stock and bond returns usually turn negative, while precious metals (gold, silver) often achieve very strong positive returns.