What’s the forecast for gold prices?
The gold price is predicted to rise to $4,000 per troy ounce by the middle of next year (up from $3,772 on September 24), Goldman Sachs Research analyst Lina Thomas writes in the team’s report. Their gold price forecast is driven by strong structural demand from central banks and easing from the US Federal Reserve (which supports ETF demand for gold).
Buyers of gold fall into two broad groups, according to Goldman Sachs Research. Conviction buyers tend to purchase the yellow metal consistently, regardless of the price, and based on their view on the economy or to hedge risk. These include central banks, exchange-traded funds, and speculators. Their thesis-driven flows set the price direction.
As a rule of thumb, every 100 tonnes of net purchases by these conviction holders corresponds to a 1.7% rise in the gold price.
By contrast, opportunistic buyers such as households in emerging markets step in when they believe the price is right. They may provide a floor under prices on the way down and resistance on the way up.
Why the gold price is increasing
Central banks purchased less gold in July than in an average month this year, according to Goldman Sachs Research’s nowcast of central bank activity. Central banks have purchased 64 tonnes of gold per month this year, which is below Goldman Sachs Research’s forecast of 80 tonnes per month.
“This is consistent with the seasonal pattern,” Thomas explains. “Central bank purchases tend to slow in the summer and re-accelerate from September.”
“But the seasonal pattern supports our unchanged central bank outlook,” she adds.
Central banks—particularly in emerging markets—have increased the pace of gold purchases roughly fivefold since 2022, when Russia’s foreign-currency reserves were frozen following its invasion of Ukraine. “We view this as a structural shift in reserve management behavior, and we do not expect a near-term reversal,” Thomas writes. “Our base case assumes that the current trend in official sector accumulation continues for another three years.”
Goldman Sachs Research expects central banks to continue accumulating gold for another three years.
Emerging market central banks have significant demand for gold
“Our rationale is that emerging market central banks remain significantly underweight gold compared to their developed market counterparts and are gradually increasing allocations as part of a broader diversification strategy,” Thomas writes.
For example, Goldman Sachs Research estimates that China holds less than 10% of its reserves in gold, compared to around 70% for the US, Germany, France, and Italy.
Recent survey data from the World Gold Council supports this view, Thomas adds. Some 95% of surveyed central banks expect global gold holdings to increase in the next 12 months, with none anticipating a decrease.
Meanwhile, 43% of surveyed central banks plan to increase their own gold holdings, the highest level since the survey began in 2018. None of the central banks in the survey plan to reduce their gold holdings.
Gold is more likely to exceed our analysts’ forecast rather than undershoot
At the same time, speculative positioning in derivatives markets by large investors like hedge funds appears significantly bullish on gold. The amount of net long gold bets on the futures and options exchange COMEX is in its 73rd percentile since 2014 as speculators build up their long positions betting on gold prices to rise.
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