Gold valuation has reached extreme levels! The fading of risk aversion in the second half of the year will become the biggest bearish factor.

Against the backdrop of tightening global liquidity and collective declines in Bitcoin and commodities, gold, which had previously surged strongly, is now facing a severe revaluation.

According to Zuifeng Trading Desk, Citi Research pointed out in its latest commodities report on January 30th that the current gold price has seriously overdrawn on future uncertainties.

Maximilian Layton, Citi's Global Head of Commodities, believes that although gold prices may still reach new highs in the short term, their valuation has reached an “extreme level.” As the wave of risk-aversion collectively fades in the second half of 2026, the "pillar" supporting gold prices may face a structural collapse.

Multiple Historical Indicators Flash Valuation "Red Flags"

Citi's report uses multidimensional modeling to show the bubble characteristics of current gold prices.

First is the disconnect from the real economy: Currently, annual global spending on gold as a percentage of GDP has soared to 0.7%, the highest level in the past 55 years, far exceeding levels seen during the 1980s oil crisis.

Meanwhile, the current gold price has entirely separated from the marginal production costs of the mining industry. The report shows that profit margins for high-cost gold miners are at their highest in 50 years.

Even against the backdrop of extreme inflation expectations, the ratio of gold to global broad money supply has risen to 16%, even higher than its peak during the first oil crisis in the early 1970s.

Citi emphasizes that once the wealth allocation shift is completed, gold will return to equilibrium pricing based on savings allocation.

"If the share of gold allocation returns only to the historical norm of GDP (0.35%-0.4%), and other conditions remain unchanged, the gold price will be nearly halved from the current level, falling back to $2,500–3,000/oz."

Although Citi's 2026 baseline price target is $4,600, its downside risk is surging along with the valuation bubble.

Outlook for H2 2026: Retreat of Risk-aversion is the Biggest Threat

Although Citi maintains its supportive view of gold prices in the short term (0-3 months) with a target of $5,400–5,600/oz due to persistently high geopolitical and economic risks, its stance turns distinctly “cautious” for the second half of 2026.

Citi expects the series of risk factors supporting currently high gold prices to fade later this year. Specifically:

1. Geopolitical Cooling: Citi's baseline scenario anticipates some form of agreement for the Russia-Ukraine conflict by summer 2026, while the Iran situation will de-escalate. The easing of these two major risks will significantly weaken investors’ hedging motives.
2. U.S. "Goldilocks" Economy: The Trump administration, in the 2026 midterm election year, is expected to push the U.S. economy into a "Goldilocks" state (high growth, low inflation), which will reduce portfolio-hedging demand for gold.
3. Federal Reserve Independence: Despite political pressure, Citi expects the Fed to maintain its independence, which is a medium-term bearish factor for gold prices. If Waller is finally confirmed as the next Fed chair, it will reinforce market confidence in monetary policy independence.

On this basis, Citi forecasts gold prices will begin to fall in the second half of 2026, with further declines in 2027. In its baseline scenario, the gold price is expected to fall back to $4,000/oz in 2027; in a bear market scenario (20% probability), the price may crash to $3,000/oz.

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The above highlights are from Zuifeng Trading Desk.

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