Jan 30 - Citi said on Friday that gold investment allocations are being supported by a broad, overlapping set of geopolitical and economic risks, but that about half of those risks may dissipate later in 2026.
According to the bank, several key risk drivers - including tensions between the U.S. and China, risks around China and Taiwan, concerns over U.S. government debt, and uncertainty linked to artificial intelligence - are likely to keep gold prices high relative to historical norms. Citi nevertheless cautioned that it estimates roughly 50% of the risks currently priced into gold either will not occur in 2026 or will not endure beyond the year.
Citi outlined scenarios that would lower the risk environment materially from current levels. The bank said it expects the incoming administration to pursue a U.S. economic environment favorable to growth and stability during the 2026 midterm year, and it identified the end of the Russia-Ukraine war and an eventual de-escalation with Iran as events that would represent major declines in risk compared with today.
Market moves this week underscored gold's vulnerability to political and policy signals. Earlier in the week, spot gold climbed to a record closing high near $5,600 per ounce amid geopolitical and economic uncertainty. On Friday, prices reversed sharply, down 12.6% as of 1840 GMT - on track for the largest single-day percentage decline on record - after the dollar strengthened following the announcement that former Federal Reserve Governor Kevin Warsh was the pick to lead the U.S. central bank when Jerome Powell's term ends in May.
Citi noted the potential policy implications of that nomination. The bank said that the nomination of Warsh, if confirmed, would further reinforce Citi's long-standing base case that the Federal Reserve maintains its political independence - a dynamic the bank views as a medium-term bearish factor for gold.
While Citi expects core geopolitical and economic concerns to keep gold elevated compared with historical averages, the bank's central estimate assumes a meaningful portion of current risk premia will decline in 2026. Investors and market participants should therefore weigh both the persistence of present risks and the prospect of significant risk reduction during the midterm year.