Citi sees gold hitting $5,000 if Hormuz reopens and Fed reverses policy

This analysis puts crude oil at the core of gold’s trajectory, meaning Brent prices and news from the Hormuz strait become the primary signals for the metal rather than direct conflict developments. A lasting decline in oil would probably feed into rate expectations rapidly, with Federal Reserve pricing acting as the key conduit. For now, gold’s immediate downside remains linked to energy-related inflation and expectations of Fed tightening. From a positioning standpoint, the argument suggests that headlines about de-escalation should be viewed as potentially positive for gold, turning the typical safe-haven pattern on its head.

According to Citi, gold’s next rally will begin not amid a crisis but when one concludes.

Key points from the note:

• Citi’s 0-3 month gold price target is $4,500 per ounce, with a 6-12 month target of $5,000.
• The projections depend on the Strait of Hormuz reopening and the conflict involving Yemen and Saudi Arabia de-escalating by the end of the year.
• Max Layton, Citi’s global head of commodities research, stated that a substantial drop in oil prices could move the Fed from rate hikes to cuts.
• That change would boost investment demand for gold and could spark a global momentum-driven rally, building on existing structural strengths.
• Gold has faced pressure during the conflict because high oil prices stoked inflation and reinforced expectations of Fed tightening.
• Gold reached an all-time high near $5,600 in late January, prior to the start of the war.

Citi anticipates substantial gains for bullion if the Strait of Hormuz becomes navigable again and tensions involving Yemen and Saudi Arabia subside, contending that an ensuing oil price decline could force the Federal Reserve to switch from rate hikes to cuts.

The bank’s 0-3 month gold objective stands at $4,500 an ounce and its 6-12 month objective at $5,000, per Reuters, with the projections premised on the strait reopening and the conflict easing by year-end.

In a research report, Max Layton, Citi’s global head of commodities research, remarked that sufficiently lower oil prices could trigger that policy change from the Fed, increasing investment demand for gold and reigniting a global momentum-led bull market. He noted that such a rally would be underpinned by multiple structurally positive factors that are already present.

The thesis hinges on gold’s performance during the Middle East conflict. Instead of climbing as a safe haven when tensions rose, gold weakened because oil shipments through Hormuz were disrupted, keeping energy costs elevated. Higher oil prices contribute to inflation, which consequently maintains the Fed’s bias toward tighter monetary policy. Rising interest rates and real yields increase the cost of holding gold, which yields no interest, dampening investor demand despite heightened geopolitical uncertainty.

Citi contends that reopening the strait would invert that sequence. A decline in oil prices would reduce inflationary pressure, allow the Fed to reduce rates and push yields lower, circumstances that have typically been positive for gold.

This change would be notable for a market that has faced difficulties for most of the year. Gold posted an all-time high around $5,600 an ounce in late January, prior to the start of the US-Iran war in late February, and has subsequently traded far under that level. Citi’s longer-term objective would recoup a significant portion of that decline without surpassing the record.

The perspective also suggests a distinct interpretation of gold’s function. In this war, the metal has acted more as an instrument linked to interest rate expectations than as a crisis hedge, meaning that de-escalation, not escalation, is the situation Citi views as most favorable.

Consequently, the forecast relies greatly on regional developments. A lasting reopening of Hormuz and a lasting reduction in hostilities would be the crucial indicators that the circumstances outlined by Citi are materializing.