Gold’s rally in 2025 has captivated markets, outperforming major asset classes and drawing renewed attention from investors navigating a volatile macroeconomic backdrop. Yet, as inflation lingers, unemployment ticks higher, and global risks evolve, analysts are warning that gold’s current highs may not be sustainable. 

A new forecast sees prices falling from record levels as economic pressures shift and monetary policy adjusts. Financial strategists from Finstera explore the factors driving gold’s ascent, and why its momentum may soon slow.

A Rally Fueled by Uncertainty and Policy Shockwaves

As of mid-2025, gold prices have surged by 30% year-to-date, including a 13% gain in just the past three months, pushing the yellow metal above $3,400 per ounce, an all-time high. These gains come amid growing concern over economic and geopolitical instability, including:

• Aggressive tariff measures, including a 25% rate on imports from Canada and Mexico, and 30% tariffs on goods from China, are pushing total tariff exposure above 50% on categories ranging from auto parts to consumer goods.
• Rising unemployment, with the U.S. jobless rate climbing from 3.4% in 2023 to 4.2%, and layoffs exceeding 696,000 through May, an 80% increase year-over-year.
• Persistent inflation, with the Consumer Price Index showing 2.4% year-over-year growth, has remained unchanged since last fall.
• A projected $2 trillion U.S. budget deficit, raising concerns over debt sustainability and the appeal of government bonds.

These conditions have left investors turning toward gold as a safe haven, particularly as the Federal Reserve remains sidelined, unable to lower interest rates without risking further inflation.

Manufacturing, Services, and Oil Underscore Economic Fragility

Recent data adds to the case for caution:

• The ISM Manufacturing Index slipped to 48.5 in May, down from 50.9 in January, signaling contraction.
• The ISM Services Index fell to 49.9, dipping below expansionary levels for the first time since 2020.
• West Texas Intermediate crude surged 18% this month, hitting $73.67 per barrel amid escalating conflict in the Middle East, which could further strain inflation metrics.

With ongoing geopolitical turmoil, including heightened military tensions in the Middle East, and uncertainty surrounding global supply chains, safe-haven demand remains elevated.

Citigroup’s Bold Forecast: A Cooling Period Ahead

Despite the impressive performance, analysts at Citigroup now forecast a decline in gold prices, projecting a drop to between $2,500 and $2,700 per ounce by the second half of 2026.

Their reasoning stems from several expected developments:

• A shift in Federal Reserve policy, including potential interest rate cuts in 2026 as economic pressures ease.
• A rebound in global growth and improving market sentiment as new fiscal measures, such as tax relief for social security recipients, are implemented.
• A normalization in Treasury bond appeal, with gold losing approximately $200 per ounce for every 1% decline in interest rates.

Citi’s updated near-term price targets are $3,300 for the next quarter and $2,800 over the next 6–12 months, down from earlier targets of $3,500 and $3,000, respectively.

Scenario Planning: Best- and Worst-Case Outcomes

Citigroup’s analysis outlines three distinct trajectories:

1. Base Case (60% probability): Gold maintains levels above $3,000 through Q3 2025, then gradually declines as inflation cools and risk appetite returns.
2. Bull Case (20% probability): Gold reaches new highs in late 2025 if tariffs deepen, geopolitical instability worsens, or stagflation concerns rise, prompting another surge in safe-haven buying.
3. Bear Case (20% probability): A sudden resolution to tariff disputes, a drop in oil prices, or robust economic recovery could prompt a sharper retreat, possibly pushing gold below $2,500 per ounce.

Role of Central Banks and Institutional Demand

Central banks have also been heavy buyers of gold in 2025, boosting reserves to diversify away from dollar-denominated assets. However, Citigroup expects official sector purchases to level off in the coming year as inflation stabilizes and global trade tensions potentially ease.

Institutional investment, while strong in early 2025, may also taper off if gold’s perceived upside diminishes. With equities up just 2% YTD and 10-year Treasury yields rising to 4.41%, portfolio shifts into gold were logical, but may not persist in a less volatile environment.

The Fed’s Policy Dilemma Remains Central

At the heart of the gold outlook is the Federal Reserve’s dual mandate, balancing inflation control with employment support. As inflation stalls and job losses rise, the Fed finds itself unable to cut rates without risking price instability. Meanwhile, maintaining high rates continues to hurt employment and slow growth.

This policy paralysis has been a tailwind for gold, but if the Fed eventually pivots toward easing, that narrative may lose steam.

Conclusion: Gold’s Rally Isn’t Over, But the Ceiling May Be Near

The precious metal is expected to be delivered in 2025, benefiting from a perfect storm of economic risk, political uncertainty, and inflation anxiety. But as analysts at Finstera point out, the factors that fueled gold’s meteoric rise may not persist through 2026.

With the potential for Federal Reserve rate cuts, rebounds in global confidence, and fiscal stimulus calming investor nerves, gold may face a cooling-off period. While prices are likely to remain elevated in the near term, the upside appears limited, and new entrants may face more downside risk than upside potential.

For now, the yellow metal continues to glitter, but its shine may fade as markets regain their balance.