Gold prices have fallen sharply since striking an all-time high of $5,594.82 an ounce on January 29, but analysts at Citi suggest the precious metal could have even further to fall. Citi analysts said in a note published on Monday that the price of gold could sink as low as $3,500/oz if the Strait of Hormuz remains closed until the end of the summer — a decline of around 19.7% from the $4357.90/oz seen at 7 a.m. ET on Tuesday. It means an asset commonly thought of as the ultimate safe haven in times of market turmoil appears “incredibly high risk” in the short term, according to the analysts. Citi said that if the critical maritime passage remains effectively closed over the summer months, global gold buying could contract and prices could retrace to levels last seen nine months ago at around $3,500/oz. “The near-term risk skew therefore looks negative and dip buying here makes sense only with a strong view of no re-escalation,” the analysts wrote. “Longer term, we maintain a bullish gold view, but we believe it is extremely high-risk in the near-term for anyone without very wide stops and longer-term investment horizons.” @GC.1 YTD mountain How gold Comex futures have performed year-to-date. Since the outbreak of the U.S.-Iran war on Feb. 28, gold’s reputation as a “safe haven” asset in times of turmoil has come under pressure as some of the drivers behind its ascendance have been called into question. A stronger-than-expected U.S. jobs report last week boosted expectations for a year-end interest rate hike, further pressuring gold prices as the prospect of higher interest rates tend to weigh on the non-yielding precious metal. As a result, Citi has downgraded its 3-month price target to $4,000/oz from $4,300/oz. U.S. gold futures for August delivery were trading at $4,352.90/oz on Tuesday morning. “Much of the headwind gold is facing now is due to the Hormuz impasse and high energy prices directly or indirectly, including high real rates and a strong dollar, weak emerging market activities, and weaker investor buying due to the central bank narrative shift,” the analysts added. “When the Strait of Hormuz situation eventually deescalates and energy prices turn lower, the headwinds against gold will ease and gold price will likely bottom out.”
