Valuation has reached its limit? Five perspectives on gold prices

Valuation has reached its limit? Five perspectives on gold prices

Against the backdrop of this year's repeated record highs in gold prices, a latest gold outlook report from Citi provides a calm perspective for the frenzied market. The core conclusion of the report is that although long-term structural demand remains, gold’s valuation from multiple dimensions is already “expensive,” and investors need to prepare for future price fluctuations.

According to Chase Wind Trading Desk, this research report released on November 10 analyzes and measures gold’s valuation from five key dimensions, all of which have reached or are close to historical extremes, sending a clear warning signal to the market.

Gold spending as a proportion of GDP hits a 55-year high: The proportion of global annual gold expenditure to global GDP has risen to about 0.55%, the highest level in the past 55 years.Gold as a proportion of household wealth hits a record high: The value of gold held by the private sector (including jewelry, bullion, and coins) now accounts for about 3.5% of global household net wealth, a record high since records began.Gold as a proportion of foreign exchange reserves at a 30-year high: Gold’s share in global central banks’ foreign exchange reserves has approached 35%, the highest since the mid-1990s.Ratio to broad money near historical peak: As a measure of monetary value, the ratio of global gold stock value to global broad money (M2) is close to the historical peak during the 1980 second oil crisis.Miners’ profits at a 50-year high: Benefiting from surging gold prices, profit margins for gold miners have reached their highest level in 50 years.

All these data point to one conclusion: from the perspectives of macroeconomics, household asset allocation, central bank actions, or industrial profits, the relative price of gold is at an extreme position. The report emphasizes that this level of allocation is rare in history.

“We estimate...the proportion of global gold expenditure to GDP has exceeded 0.55%...this is the highest operational rate in 55 years of data...the value of above-ground gold held by households has risen to 3.5% of global household net wealth, higher than its share in household wealth in 1980.”

2026 Outlook: Cautious Base Case and Potential for Huge Volatility

Despite high valuation, Citi thinks the future path for gold is far from one-directional and depends on the contest between cyclical concerns and structural risks.

The base case scenario (50% probability) predicts gold prices will fall back to $3,650 by 2026. The core logic is that as the US economic environment improves, investors’ concerns over recession will weaken, which will dampen gold’s allure as a safe haven. A “Goldilocks” economy with steady growth and controlled inflation tends to be more favorable for industrial metals and equities rather than gold. The report explains:

“In this ‘Goldilocks’ US macroeconomic environment, rate cuts...are more likely to benefit industrial metals and equities rather than gold. One key trigger for a softening gold market will be a shift in US growth sentiment (rising) and a lowering of real interest rates.”

However, Citi also paints two other radically different possibilities for investors. In a bull scenario (30% probability), ongoing structural issues—such as US fiscal sustainability crisis or increased geopolitical tensions—could drive continued inflows into gold, potentially pushing gold prices to $5,000 by the end of 2026 and further to $6,000 by the end of 2027.

  • Bull Scenario (30% probability): Surging to $5,000. If “structural concerns” like the US fiscal crisis or escalating geopolitical conflicts become reality, gold’s safe haven nature will be fully triggered. In such a scenario, the report forecasts the price of gold could climb to $5,000 by the end of 2026, and further reach $6,000 by the end of 2027.
  • Bear Scenario (20% probability): Falling to $3,000 Conversely, if global risks decrease substantially and market sentiment warms up, the currently overvalued gold price may face strong pressure and could fall back to the $3,000 level.

It’s worth noting that even in the cautious base case forecast, Citi has raised its long-term price forecast for gold. The report acknowledges that concerns around sovereign debt and geopolitical issues may support long-term structural demand, thus raising the long-term price forecast for gold from the previous $2,500 to $3,000 (calculated by 2025 US dollar value). This indicates that, in Citi’s view, gold’s status as a long-term store of value has been strengthened, providing a higher floor of price support than before.

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The above highlights are from Chase Wind Trading Desk.

For more detailed interpretations, including real-time commentary and frontline research, please join [Chase Wind Trading Desk • Annual Membership]

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