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<Research> Citi: Inflation Pressure Lifts Rate Hike Expectations; Cautious on Short-term Gold Trend
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Citi issued a report maintaining a cautious stance on the short-term trend of gold, as the continued closure of the Strait of Hormuz and surging energy prices have led to reduced investor buying. The market is concerned about risk-off sentiment triggering selling pressure, which is consistent with historical precedents for gold. Supported by resilient investment demand and a stronger RMB, Chinas spending on gold imports has remained near a historical high of around USD300 billion per year, helping gold prices stay at elevated levels by historical standards. However, this has not altered the key negative shift of declining investment demand, particularly in India. The bank speculates that retail markets outside China may be experiencing a similar trend. Inflation pressure stemming from the prolonged stalemate in the Strait of Hormuz has fueled market expectations that the Federal Reserve will raise interest rates, thereby exerting pressure on gold prices through higher real interest rates and a strong USD. Citi maintains a cautious view on gold in the short term and sets a zero- to three-month gold price target of USD4,300 per ounce. In the event of a major risk-off episode, gold prices could fall well below this level. Citi stated that as long as the Strait of Hormuz remains partially or largely closed, it will stay cautious on gold, at least until the market fully digests this factor. Nevertheless, the bank ultimately seeks to buy over a longer horizon. When tensions in the Strait of Hormuz eventually ease with Citis new base case now pointing to July current macro headwinds for gold, such as high real interest rates and a strong USD, are expected to moderate, and gold prices are likely to bottom out and rebound. Under a scenario of a more prolonged closure of the Strait of Hormuz and persistently higher energy prices (a non-base case), market concerns may shift from "inflation without recession" as high-frequency US economic data remain broadly resilient to "stagflation," the worst-case scenario for any central bank. Historically, during stagflationary periods, returns on equities and bonds have been negative, while precious metals have delivered strongly positive returns. The World Gold Councils latest 1Q26 data showed robust demand for gold bars and coins, resilient jewelry demand, and a rebound in central bank demand. Meanwhile, the worlds two largest gold consumption markets China and India have seen divergent demand trends due to differing local policy changes and opposite currency movements. Auto-translated by AI This article was automatically translated by AI, the original language version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. More Details
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