Major change in gold trading logic! Citigroup's rare "short turnover long": Non-farm "waist-cutting downgrade" triggers gold target price to $3500

In the period when the price of gold hit a historic high this year and continued to remain near the all-time high, Citigroup, one of the major Wall Street banks, who previously held a bearish view on gold, has now shifted to a short-term bullish stance on gold after the release of the significantly weak US non-farm payroll report, described as an "avalanche-style" downturn. In their latest research report released on Monday, the institution has significantly raised their gold price forecast for the next three months from $3,300 per ounce to $3,500, and also revised the expected trading range from their long-term outlook of $3,100$3,500 to $3,300$3,600, emphasizing that the core reason for this is the recent deterioration in the US economic growth outlook and inflation prospects. With the July non-farm payroll numbers falling below market expectations and the previous two months' data being revised downwards by up to 90%, Wall Street's outlook on US economic growth momentum has turned pessimistic, and expectations for Fed rate cuts have increased significantly. These two factors may become long-term catalysts for a bullish outlook on gold in the fundamental market. The non-farm payroll report, which only revealed an increase of 73,000 jobs in July, also unexpectedly revised down the employment data for May and June, cutting a total of up to 258,000 jobs, with a record-breaking downward revision of 90%. As a result, traders have heavily bet on a Fed rate cut: rate futures market pricing shows that traders are heavily betting on the restart of a Fed rate cut cycle, with the probability of a rate cut next month reaching 84% - compared to less than 40% before the non-farm release, and betting on at least two rate cuts by year-end, even betting on consecutive 25 basis point cuts in September and October, followed by another cut of 25 basis points in December, totaling 75 basis points in cuts by the end of the year. Furthermore, more aggressive traders are even betting on a script that is similar to what happened in 2024 - a 50 basis point cut in September, followed by 75 basis point cuts in October and December. "We still need to remember the situation from last summer - the Fed kept rates unchanged in July, but then received weak labor market data and cut rates by 50 basis points in September 2024," analysts at Citigroup wrote. The theory of "bad news is good news" has long been one of the driving factors behind the rise in US stock valuations - meaning that a weak US economy implies more aggressive Fed rate cuts, which is positive for risky assets like US stocks. However, with the weak non-farm report hitting risky assets hard, this theory seems to have completely collapsed. The subdued US Treasury yields and the continued downward trend in gold prices after hitting all-time highs this year may indicate a strong upward trend. The well-known "gold bear" on Wall Street suddenly shifting to a bullish view on gold Citigroup, which has been known as a "gold bear" on Wall Street for a long time, is now turning to a bullish view on gold in the short term - primarily due to the global economic growth and trade uncertainties caused by tariff policies, as well as rising inflation expectations due to Trump's global tariff stimulus, leading to a downward trajectory of US consumer confidence, consumer spending, and labor market, which could potentially drive the US economy into a soft spot and continue to heat up expectations for Fed rate cuts. These factors occupy the investment landscape, marking a significant shift in the gold trading logic. "In the second half of 2025, the growth trend of the US economy is expected to weaken and inflation concerns related to tariffs are expected to continue to rise, coupled with a weakening US dollar, the gold price is expected to moderately rise, thereby potentially setting new historical highs once again," Citigroup said in the research report. Last week, US President Donald Trump announced new tariffs on export goods from dozens of trading partners, including Canada, Brazil, India, and Switzerland. US Trade Representative James Green said in an interview on the CBS show "Facing the Nation" that the recently announced tariffs on multiple countries may continue, rather than be further reduced during negotiations. At the same time, the US dollar weakened last week, and the US non-farm payroll numbers in July only increased by 73,000 jobs, with the June data being revised to an increase of only 14,000 jobs. This result has reignited hopes in the market for a Fed rate cut in September, with a small number of interest rate futures market traders starting to price in a 50-basis point rate cut in September. The Citigroup analysis team also pointed out that not only was the labor market weak in July, but there has been a significant weakening trend in US labor market data dating back to the second quarter of 2025. Additionally, Trump directly dismissed the head of the Labor Department's statistics and tried to intervene in the Fed's FOMC monetary policy, leading to increasing concerns about the independence of the Fed and US statistical data credibility, while geopolitical risks from the Russia-Ukraine conflict remain high. The Citigroup analysis team emphasized that gold has always been seen as the core safe-haven asset during periods of political and economic uncertainty, and that it performs particularly well in an environment where expectations for Fed rate cuts are significantly heightened. Citigroup's data shows that since mid-2022, global gold demand has increased by more than a third, and by the second quarter of 2025, the price of gold has almost doubled. If this demand continues at the same pace, continuing to set new highs is a highly probable event. The institution also added that the strong performance of gold demand is benefiting from strong investment demand in a weak economic environment, moderate buying from global central banks, and stable jewelry demand in Asia despite rising prices. $3500 is not the limit, gold may surge towards $4000? On Monday, the spot price of gold slightly fell to around $3350 per ounce, mainly due to profit-taking by some retail investors after the gold price had its biggest increase in two months last Friday, driven primarily by strong safe-haven demand and an increase in rate cut expectations due to the weak non-farm payroll data. Another factor is that last week, US President Trump announced new tariffs on imported goods from dozens of countries, with rates ranging from 10% to 41%, to take effect on August 7, once again sparking global trade tensions. The significantly lower-than-expected job growth in the US in July and the significant downward revisions to the previous two months' data have exacerbated concerns about the US economy, with the possibility of major cracks appearing in the labor market, leading to the possibility of a Fed rate cut in September. As mentioned above, the economic and international trade uncertainties brought about by tariff policies, as well as the weak US economic growth and expectations of a Fed rate cut, are reshaping the gold trading logic, potentially driving gold to a strong level at least until the potential next round of Fed rate cuts by mid-2026. In the view of the Wall Street financial giant Goldman Sachs, being bullish on gold is the most certain trade from the second half of this year to the first half of next year. The institution predicts that the spot gold price will rise to $3700 by the end of 2025 and reach $4000 by mid-2026. Another Wall Street bank, JPMorgan Chase, stated that the deterioration of US non-farm payroll data will be the strongest catalyst for an increase in gold prices, with an optimistic scenario predicting that gold prices will move towards the target price of $3675 per ounce by year-end, and could reach $4000 per ounce as early as the beginning of next year. JPMorgan Chase also stated that the continuously weak private employment growth data will be enough to change market sentiment and confirm a rate cut in September. In this situation, the decline in US Treasury yields may gain stronger momentum, accelerating the influx of funds into gold ETFs and futures markets. JPMorgan Chase emphasized that if US labor data deteriorates more substantially, prompting a rate cut by the Fed, it will drive the strongest bullish response in gold ETF demand and gold prices, consolidating the strong bullish trend towards breaking through $4000 per ounce. Overall, the US economy taking a hit by the weak non-farm payroll data, combined with continued trade uncertainties, a weak labor market, and increased expectations for Fed rate cuts, have reshaped the gold trading logic. This may push gold to new highs at least until the potential next round of Fed rate cuts by mid-2026.