Gold prices have surged 30% so far in 2025, fueled largely by escalating economic concerns linked to the ongoing tariff-driven trade war. The yellow metal’s strong rally includes a sharp 13% gain over the past three months, with a significant boost following President Trump’s tariff announcements on April 2, known as “Liberation Day.”
This impressive performance far outpaces other major asset classes, with the S&P 500 rising just 2% year-to-date and the yield on the 10-year U.S. Treasury note climbing to 4.41% from below 4% prior to the new tariffs.
The rapid ascent of gold has caught the attention of many investors, raising the question: does gold still have room to climb? This week, commodities analysts at Citigroup released updated forecasts offering a more cautious outlook.
Economic Pressures and Trade Uncertainty Drive Gold Gains
The U.S. economy is currently navigating its toughest headwinds since 2022, when soaring inflation prompted the Federal Reserve to execute aggressive interest rate hikes. Inflation remains stubbornly high, and job losses are mounting, with layoffs up 80% year-over-year through May.
Despite some tariff pauses following April’s announcements, significant duties remain. Imports from Canada, Mexico, and the automotive sector face 25% tariffs, while a 10% baseline import tax applies broadly. New tariffs on Chinese goods have pushed total duties beyond 50% on items ranging from clothing to car parts.
The U.S. unemployment rate rose to 4.2% in 2025 from 3.4% in 2023. Inflation, measured by the Consumer Price Index, remains steady at 2.4% year-over-year, unchanged since September 2024.
This combination of persistent inflation and weakening job market places the Fed in a difficult position. Raising rates could further increase unemployment, while cutting rates risks stoking inflation—especially amid uncertain tariff impacts on supply chains.
Manufacturing and services indicators add to the gloom. The Institute for Supply Management’s manufacturing index fell to 48.5 in May from 50.9 in January, and the services index dropped to 49.9 from 54 in December. Readings below 50 typically signal economic contraction.
Additional pressure comes from the U.S. budget deficit, projected near $2 trillion in 2025, and growing national debt raising concerns about the future appeal of Treasury bonds.
Geopolitical tensions in the Middle East, highlighted by Israel’s attack on Iran and Iran’s response, have added uncertainty and driven crude oil prices higher. West Texas Intermediate crude surged 18% this month to $73.67, intensifying inflation risks.
Citigroup Forecasts a Gold Correction Ahead
Gold’s climb past $3,400 per ounce has pushed the metal to record highs, prompting warnings that speculative enthusiasm may have gone too far.
Citigroup’s commodities analysts now predict a weakening in gold demand starting after summer and extending into 2026. They foresee gold prices retreating to a range between $2,500 and $2,700 by the end of next year.
Several factors could reduce gold’s appeal: fewer geopolitical and economic shocks, growing optimism about the economy ahead of the midterm elections, and new tax relief measures, including benefits for Social Security recipients.
An improving economic outlook could also bolster Treasury bonds, cutting into gold’s attractiveness. Citi notes that for every 1% drop in interest rates, gold’s price typically falls by about $200 per ounce.
The bank’s revised near-term target for gold is $3,300 per ounce, with a 6- to 12-month forecast of $2,800 per ounce—down from previous estimates of $3,500 and $3,000, respectively. They expect prices to fluctuate between $3,100 and $3,500 in the third quarter, signaling limited upside for new investors.
As gold’s rally faces potential headwinds, investors will be watching closely to see if the metal can maintain its shine amid evolving economic and geopolitical challenges.
