Is the Gold Bull Market Not Over Yet? Citi Bets on Chain Reaction After Hormuz Strait Reopens in Q4

Citi's latest commodity outlook maintains a bullish view on gold, setting a 0 to 3-month target price of $4,800 per ounce and a 6 to 12-month target price of $5,000 per ounce, both significantly higher than the current spot price of around $4,400. Citi believes that if the Strait of Hormuz resumes normal shipping in Q4 2026, a retreat in energy prices will become an important catalyst for the next round of gold price increases.

Citi expects that after the reopening of the Strait of Hormuz, falling oil prices will benefit gold through multiple channels. On one hand, lower energy costs will help ease inflationary pressures, allowing the Federal Reserve more room to shift to accommodative policy; on the other hand, a weaker US dollar and lower real interest rates will decrease the opportunity cost of holding non-interest-bearing gold. Falling energy prices will also likely relieve fiscal and external balance pressures in emerging markets, releasing previously constrained physical gold demand.

Citi also notes that the global energy market is currently in an abnormal state. The bank has raised its Brent crude oil forecast for Q3 2026 to $86 per barrel but maintains its Q4 forecast at $70 and 2027 at $65, noting that while the comprehensive price of refined oil has exceeded $120 per barrel, crude oil itself has not reached its 2022 historical high, and what is truly abnormal is the sharp surge in refining margins.

Citi judges that this situation is difficult to sustain in the long term. Iran faces the dual pressures of currency depreciation and sharply reduced oil export revenues, providing an economic incentive to ease the blockade; at the same time, the strain high oil prices impose on the US economy and financial markets keeps mounting, and the approaching November midterm elections may also increase Washington's willingness to cool tensions.

If the Strait of Hormuz reopens, the global crude market could quickly shift from a tight balance to oversupply, with a surplus of 3 to 4 million barrels per day, which would significantly push oil prices lower.

While Citi remains bullish on gold, it also warns that the current rally is still vulnerable. Since August, gold’s rise has been mainly driven by speculative positions and paper gold trading, while physical demand has not caught up. Therefore, if a short-term pullback occurs, the bank instead views it as an opportunity to add positions.

Even if the Strait of Hormuz remains closed for an extended period, Citi still sees limited downside for gold with overall risks skewed to the upside. However, should global equities experience severe corrections, investors selling gold to cover losses elsewhere could also cause temporary pullbacks.

Goldman Sachs: The Bull Market Is Not Over, But in an “Extended Pause”

Tony Kim, Global Head of Metals Trading for Goldman Sachs FICC and Equities, is also optimistic about gold’s outlook. He believes the drop in gold prices from January highs this year does not mean the end of the bull market, but rather marks an “extended pause.”

He sees that the policy orientation of new Fed Chair Kevin Warsh, as well as the Iran war’s impact on the energy market, inflation, and global reserve accumulation, have collectively extended gold’s adjustment period. However, the real force still supporting the market is the persistent buying by global central banks.

Kim points out that global annual gold production is about 3,500 tons. Before the Russia-Ukraine conflict, central banks worldwide purchased about 400 to 500 tons per year; now, that number has risen to roughly 1,000 to 1,100 tons. This means that the amount of gold available for jewelry, ETFs, bullion, and other investments has decreased significantly. Therefore, it may not take a large amount of new funds to drive gold prices much higher.

He also emphasizes that the traditional relationship between gold and real interest rates is changing. In the long run, fiscal sustainability issues may become an important reason for allocating funds to gold. Kim states that $4,000 per ounce is a rather solid support level, with sovereign and institutional funds placing buy orders in that vicinity.

UBS: Fiscal Risks Are Becoming a New Long-Term Driver for Gold

UBS also believes that the current gold bull market is not over. UBS’s chief strategist points out that after the West froze the Russian central bank’s foreign exchange reserves in 2022, global reserve managers began to rethink what assets could truly serve as money. Since then, the proportion of gold in reserves held by emerging market central banks and sovereign funds has risen from 5%–7% in 2022 to about 11% now.

This change has led to a structural shift in gold's sensitivity to real interest rates. From 2022 to 2023, the US 5-year real yield rose by more than 4 percentage points; according to past relationships, the price of gold should have fallen by about 55%, but actually rose 7%. In the following two years, the real yield fell less than 1 percentage point, yet gold rose by 110%.

UBS believes that in addition to real rates, the correlation between bonds and stocks, and the deterioration of US fiscal conditions, are also providing important support to gold. Over the next decade, US public debt is expected to continue rising sharply, and the US fiscal deficit remains around 6% of GDP even at full employment.

UBS warns that fiscal pressure is increasingly affecting monetary policy, and signs of “fiscal dominance” are already appearing in the United States. As investors reassess the fiscal sustainability of major global economies, gold is becoming one of the most direct and attractive assets for investment under this trend.