Citibank: Gold valuation has reached extreme levels! Risk aversion is expected to fade in the second half of the year, becoming the biggest negative factor.

Citigroup warns that the valuation of gold has reached an extreme level, with global gold spending as a percentage of GDP skyrocketing to 0.7%, the highest in 55 years. If the gold allocation ratio returns to the historical norm of 0.35% to 0.4%, the price of gold will face the risk of being "halved." With hopes for an agreement in the conflict between Russia and Ukraine in the second half of 2026, the US economy on the rise, and the independence of the Federal Reserve confirmed, the collective fading of risk aversion will remove the last support for the price of gold. Amid a backdrop of tightening global liquidity and a collective downturn in Bitcoin and commodities, the previously skyrocketing gold is facing a serious reevaluation of its value. In their latest commodities research report on January 30, Citigroup points out that the current price of gold has severely overshot future uncertainties. Maximilian Layton, global commodities director at the bank, believes that although gold prices still have the potential to rise in the short term, its valuation has reached an "extreme level." With the collective fading of risk aversion in the second half of 2026, the "pillar" supporting the gold price may face structural collapse. Several historical indicators signal valuation "red flags." Citigroup's report shows the bubble characteristics of the current gold price through multidimensional modeling. Firstly, it is detached from the real economy: the global annual spending on gold as a percentage of GDP has skyrocketed to 0.7%, the highest level in the past 55 years, far exceeding the level during the 1980 oil crisis. At the same time, the current gold price has completely detached from the marginal production costs of the mining industry. The research report shows that the profit margin of high-cost gold miners is at its highest level in 50 years. Even in the background of extreme inflation expectations, the ratio of gold to the global broad money supply has risen to 16%, even higher than the peak during the first oil crisis of the early 1970s. Citigroup emphasizes that once the transfer of wealth distribution is complete, gold will return to an equilibrium pricing based on savings distribution. "If the gold allocation ratio only returns to historical norms of GDP percentage (0.35%-0.4%), under unchanged conditions, the price of gold will nearly halve from the current level, falling to $2500-3000 per ounce." Although Citigroup's baseline price target for 2026 is $4600, the downside risk is increasing dramatically as the valuation bubble intensifies. Outlook for the second half of 2026: Declining risk aversion is the biggest threat Although Citigroup maintains a supportive view on the price of gold in the short term (0-3 months), with a target price ranging from $5400-5600 per ounce, due to continued high geopolitical and economic risks. However, the attitude of Citigroup towards the second half of 2026 has become noticeably "cautious." Citigroup expects that a series of risk factors that currently support the high price of gold will diminish later this year. Specifically: Geopolitical cooling down: In its base scenario, Citigroup expects that the Russia-Ukraine conflict is likely to reach some form of agreement before the summer of 2026, while the situation in Iran will de-escalate. The easing of these two major risks will significantly weaken investors' hedging motivations. "Golden girl" of the US economy: The Trump administration pushing the US economy into a "golden girl" state (high growth, low inflation) in the midterm election year of 2026 will weaken the demand for gold in investment portfolios. Independence of the Federal Reserve: Despite political pressure, Citigroup predicts that the Federal Reserve will maintain its independence, which is also a medium-term bearish factor for the gold price. If Wash is confirmed as the next Federal Reserve chairman, it will strengthen market confidence in the independence of monetary policy. Based on this, Citigroup predicts that the price of gold will begin to fall in the second half of 2026 and further decline in 2027. In its base scenario, the price of gold in 2027 will fall to $4000 per ounce; while in a bear market scenario (20% probability), the price of gold may plummet to $3000 per ounce. This article was reprinted from the "US Stock IPO" WeChat official account; GMTEight Editor: Chen Xiaoyi.