Expectations of interest rate hikes intensify, Citi lowers gold price target to $4,000.

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Expectations for interest rate hikes continue to rise, putting short-term pressure on gold's outlook. Citigroup has lowered its three-month gold target price from $4,300 per ounce to $4,000 per ounce, citing the stalemate in the Strait of Hormuz and high energy prices boosting market expectations for a Fed rate hike this year.

Citigroup analysts Kenny Hu and others noted in a report on Monday that weak physical demand could further drag down gold prices. They warned that if the Strait of Hormuz remains blocked until late summer, shrinking gold purchases could push prices down to $3,500 per ounce. Meanwhile, stronger-than-expected US job data pushed the dollar to a near two-month high, putting extra pressure on dollar-denominated gold.

Nevertheless, Trump said on Monday that both Israel and Iran showed willingness for an "immediate ceasefire" and that final peace talks are advancing. This news helped gold prices rebound from intraday lows, easing downward pressure to some extent. Spot gold is currently quoted at $4,318.07 per ounce, after hitting an intraday low of $4,268.39 per ounce, the lowest since March 23.

Sharp Rise in Rate Hike Expectations, Strong Dollar Suppresses Gold Prices

Strong job data is the direct catalyst for the current surge in interest rate hike expectations. The US added 172,000 jobs last month, exceeding market expectations and significantly increasing traders' bets on a Fed rate hike by year-end.

According to CME Group’s FedWatch tool, the market currently prices a 43% probability of a 25-basis-point rate hike in December, compared to just about 14% a month ago. The dollar then strengthened to a near two-month high, further suppressing the appeal of dollar-denominated gold.

The market is now waiting for the US Consumer Price Index (CPI) data to be released on Wednesday and the Producer Price Index (PPI) data on Thursday to get further clues on the Fed’s rate trajectory.

Strait of Hormuz Stalemate Poses Key Downside Risk

Citigroup analysts list the situation in the Strait of Hormuz as one of the most important short-term risk factors for gold prices. The continued blockade of the strait has driven up energy prices, thereby increasing inflation pressure and strengthening market expectations for the Fed to maintain a tightening stance.

Analysts pointed out that if the blockade continues until late summer, a reduction in gold purchases could prompt prices to fall to $3,500 per ounce. “Thus, short-term risks appear to be skewed to the downside, and only if the situation is certain not to escalate further will buying on dips make sense.”

It is noteworthy that ceasefire expectations have a dual effect—a peace agreement, if achieved, would reduce the inflation risk driven by energy prices, thereby easing the pressure for central banks to maintain high interest rates, but it would also undermine gold’s appeal as a safe haven asset.

Long-Term Target Unchanged, Short-Term Risks Extremely High

Despite lowering its short-term target price, Citigroup maintains its 6 to 12-month gold target of $5,000 per ounce, indicating its long-term view on gold remains unchanged.

“In the long run, we are still bullish on gold, but we believe short-term investment in gold carries extremely high risk, especially for investors who have not set sufficiently wide stop-losses or whose investment horizon is short,” analysts wrote.

This indicates that Citigroup’s bullish logic for gold still holds in the medium to long term. But under the multiple pressures of rate hike expectations, a strong dollar, and geopolitical uncertainty, short-term traders need to remain highly cautious.

Risk Warning and DisclaimerThere are risks in the market, and investments should be made cautiously. This article does not constitute individual investment advice and does not take into account the individual investment goals, financial circumstances, or needs of any particular user. Users should consider whether any opinions, views, or conclusions here are suitable for their specific situation. Investments based on this are at your own risk. ```