Goldman Sachs stated that gold becomes more popular during interest rate cuts; concerns over financial sanction risks are driving central bank purchases of gold, and as the U.S. elections become the focus, Western investors are returning to the gold market; even if by the end of next year, the pace of central bank gold purchases slows to 30 tons per month, which is only one-third of the average monthly scale since 2022, gold prices will still rise by another 9% by the end of the year
This Wednesday, international gold prices once again reached an intraday historical high, with the spot gold price testing $2,790 per ounce during the midday peak of the U.S. stock market. Goldman Sachs has recently raised its gold price forecast, predicting that gold prices will be "higher than previously expected."
Goldman Sachs now expects that by next year, specifically early 2025, gold prices will rise to $2,900 per ounce, an increase of 7.4% from the previous forecast of $2,700, and is expected to reach $3,000 by December next year.
The Goldman Sachs report mentions central banks as major buyers of gold, noting that central banks in emerging markets have increased their purchases of gold, emphasizing three key factors:
Government financial and monetary management agencies (fear demand from central banks), investors (facing interest rate uncertainty), and speculators (seeking safe havens).
The report states that from a structural perspective, demand from central banks is higher (bringing a 9% increase by December 2025), coupled with the gradual increase in gold ETF holdings after the Federal Reserve cuts interest rates (bringing a 7% increase), offsetting the drag from Goldman Sachs' assumption of a gradual normalization of holdings (bringing a 6% decrease). The report writes:
"Gold trading is typically closely related to interest rates. As an asset that does not provide any yield, its (gold's) attractiveness to investors usually decreases when interest rates are high, while it tends to become more popular when interest rates decline."
The report states that the current relationship between gold prices and interest rates remains unchanged. Since the Russia-Ukraine conflict, Goldman Sachs has quadrupled its demand expectations for central governments and other institutions in the London over-the-counter market. Since 2022, the level relationship between interest rates and gold prices has been reset.
What comes next? Goldman Sachs' new model estimates that for every additional 100 tons of gold demand, gold prices will rise by 1.5%-2%.
Goldman Sachs found that concerns over U.S. financial sanctions and the impact on U.S. sovereign debt well explain the behavior of global central banks purchasing gold. Goldman Sachs assumes that by the end of 2025, the pace of central bank purchases will slow to 30 tons per month—about one-third of the average monthly gold purchases of 85 tons since 2022—but structurally still higher than the average monthly scale of 17 tons before Russian reserves were frozen due to sanctions. This assumption implies that by the end of 2025, gold prices will rise another 9%.
The report points out that historical experience shows that in the face of uncertainty and when investors seek safe havens, gold positions tend to increase. For example, after the U.S. government announced six trade tariffs during Trump's presidency, from May to October 2019, the net long positions held by COMEX managed funds in gold increased by nearly 900 tons.
Finally, the report notes that concerns over the risk of financial sanctions are one of the reasons driving central banks to purchase gold.
“As the U.S. presidential election becomes a focal point, Western investors are returning to the gold market.”
"Gold may provide benefits for hedging against potential geopolitical shocks, including escalating trade tensions, Federal Reserve dependency risks, and debt concerns."