Goldman Sachs has revised its year-end price target for gold to $2,700 per ounce, up from the previous estimate of $2,300, citing the metal’s ongoing resurgence.
The investment bank notes that while gold’s value traditionally correlates with real interest rates, economic growth expectations, and the strength of the US dollar, these factors do not fully account for the metal’s sharp 20% rise over the past two months. This increase has occurred despite fewer than-expected Federal Reserve rate cuts and strong growth in major economies.
Goldman points to significant new drivers behind the rise: a rapid accumulation of gold by Emerging Market (EM) Central Banks and a surge in retail purchasing in Asia. These moves are in line with current macroeconomic policies and geopolitical circumstances, rather than being purely spontaneous.
The bank also sees potential for further support for gold from anticipated US Federal Reserve rate cuts, which could counterbalance challenges from exchange-traded funds (ETFs), along with the upcoming US electoral cycle and fiscal settings potentially introducing favourable conditions for gold investors.
Goldman emphasizes that the divergence from traditional economic drivers necessitates a new framework for analyzing gold’s price movements. It highlights gold’s role as a haven asset, increasingly relevant in times of both cyclical and structural uncertainty, underscored by growing doubts about the dollar-backed international monetary system.
The increased gold buying by EM Central Banks is largely a strategic response to fears of sanctions, while strong demand in Asia, especially from China, is driven by concerns about economic instability and currency depreciation, particularly amid troubles in the real estate sector.
However, Goldman Sachs outlines several factors that could disrupt the upward trajectory of gold, including peaceful resolutions to geopolitical conflicts in the Middle East and Ukraine, a halt in gold acquisition by major EM Central Banks, stabilization of China’s economic growth, especially in the real estate sector, and a potential hawkish shift by the US Federal Reserve.
Nevertheless, the bank considers the likelihood of these factors occurring simultaneously in the near term to be low, supporting a continued bullish outlook for gold.
