Gold is the thing investors run to when the world feels scary. The world feels plenty scary right now, and gold is falling anyway.
Gold set a record of $5,594.82 an ounce on January 29. Since then it has slid to about $4,358. That record actually came before the U.S.-Iran war started on February 28. Since the fighting began, gold's safe-haven shine has come under pressure, not gotten a boost.
Citi told clients this week the slide may not be over. The bank thinks gold could fall to $3,500 an ounce if the Strait of Hormuz stays shut through the end of summer.
That waterway is a key route for the world's oil. While it stays blocked, energy stays pricey, and that weighs on gold.
A drop to $3,500 would be nearly 20% below today's price. So Citi called an asset people buy to feel safe "incredibly high risk" for now.
If you're new to the metal, there are a few ways to own gold before you try to judge swings like this.
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A few forces are pulling on gold at once. Energy costs are high, the dollar is strong, and real interest rates are rising.
Real interest rates are the return you earn after inflation. When they climb, a metal that pays nothing looks worse next to Treasury bonds and savings that now pay more.
A strong jobs report last week made it worse. It pushed investors to bet the Fed's next move could be a rate hike.
Higher rates lift what safe accounts pay, and that pulls even more shine off gold. The story around central bank gold buying has shifted too, and that buying was a big reason prices ran so high in the first place.
Put together, those forces explain why gold slipped even as global tensions stayed high.
Citi is not bearish forever, and it still likes gold for the long run. The bank ties most of the pain to the Hormuz standoff and high energy costs.
Citi also trimmed its 3-month price target to $4,000 an ounce, down from $4,300. Even so, August gold futures still traded near $4,353 an ounce on Tuesday.
Once that calms and energy prices drop, Citi expects the pressure to ease and gold to find a floor. There's a catch, though.
Citi says buying the dip now only makes sense if you're sure the conflict won't flare up again.
For long-term investors, funds like gold ETFs are one way to ride it out without watching the price each day.
Citi's bottom line: the safe haven is the risky trade right now.
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