Gold, iron ore prices to drop, Citi warns

Gold has been one of the best performing asset classes this year, but Citi is now warning of a sharp fall in prices over the next 18 months. The US bank is also downbeat on iron ore prices for the near term.

Gold faces a sharp pullback over the next 18 months, according to Citi. Picture: Angela Weiss/AFP

Gold faces a sharp pullback over the next 18 months according to Citi, despite being one of the best performing asset classes of the year.

The US investment bank forecasts weakening investment demand, improving global growth prospects and US interest rate cuts will push gold down to about US2,500toUS2,700 per ounce by the end of 2026, implying a 20-26 per cent drop from current levels.

Citi has also cut its iron ore price forecasts, predicting $US90 a tonne for both the next three months and the next 6–12 months.

Iron ore prices have fallen about 5 per cent to $US93 a tonne this year amid sluggish growth in China and tariff hikes on US steel imports. While these prices remain profitable for Australian producers, they haven’t enticed investors to shift from banking to mining stocks.

In contrast, gold has surged approximately 30 per cent after reaching a record high of $US3,500 in April, with escalating trade tensions adding to factors that have more than doubled the gold price since late 2022.

Gold faces a sharp pullback over the next 18 months, according to Citi.

Gold miners have dominated ASX performance charts. Regis Resources, Genesis Resources, Evolution Mining, Gold Road Resources and West African Resources rank in the top 10 performers with year-to-date gains of 60-88 per cent.

Max Layton, Citi’s global head of commodities research, acknowledges the difficult macroeconomic environment, but points out this uncertainty has driven gold buying to record levels — approximately 0.5 per cent of global GDP — as investors hedge against global growth slowdowns and equity market downturns.

Several factors have supported gold’s stellar performance. Economic growth has been constrained by high US interest rates, with the US economy gradually slowing. Meanwhile, the impact of rising US tariffs — from about 2.5 per cent to around 15 per cent — will likely cause higher US inflation and weaker employment.

Geopolitical risks remain elevated, particularly regarding the ongoing Iran-Israel conflict. Though oil production impacts have been limited so far, the situation remains volatile.

Despite these concerns, Citi believes global growth risks are “skewed to the upside for 2026” and therefore recommends selling gold on rallies. Consistent with this pro-growth view, they suggest buying aluminium and copper on price dips.

The bank cites three key factors supporting this outlook. First, Donald Trump’s One Big Beautiful Bill Act should bolster US manufacturing and consumption growth in late 2025 and into 2026.

Second, the Federal Reserve has significant room to cut interest rates once tariffs pass through the system or if growth slows more than expected. These cuts should eventually lift global growth sentiment, which has been suppressed by high rates for the past three years.

Third, Citi strongly believes President Trump cares about US popularity, GDP and geopolitical success — creating what they call the “Trump put” — particularly as the November 2026 midterm elections come into focus.

“The existence of the Trump growth and popularity ‘put’ and timing of the mid-terms means he may dial back his policies or use innovative new ideas to raise growth,” Mr Layton said.

Citi expects gold prices to fall up to 26 per cent by the end of 2026. Picture: Timothy A. Clary/AFP

Additional growth drivers include increased European defence spending for 2026 and China’s potential pivot toward new export markets and investments in AI, data centres, decarbonisation and robotics to offset US export weakness.

Citi attributes most of gold’s recent rally to growth and equity concerns rather than central bank buying, though the latter has been significant. The price surge from US2,600 to US3,300 year-to-date primarily reflected increased non-central bank investment as investors hedged against various risks.

This fear-driven investment demand, combined with resilient jewellery consumption in India and China, pushed gold to all-time record highs in both nominal and real terms.

However, gold prices have “disconnected from miners’ margins,” with producer margins now at 50-year highs at current spot and forward prices.

“Gold demand is firing on all cylinders at present, with about 0.5 per cent of world GDP currently being spent on gold, the highest in half a century of data,” Mr Layton said.

He expects investment demand to abate in late 2025 and 2026 as Trump’s economic policies take effect and recommends gold producers “use the extraordinary strength in long-dated gold prices to insure against downside below $US3,600-3,700/oz — the average forward price over the next five years.”

Originally published as Gold, iron ore prices to drop, Citi warns