Goldman Sachs has significantly lowered its gold price forecasts, citing the Fed's shift to a more hawkish policy in recent months and the impact of this change on investors' positions; however, given the strong gold purchases by central banks around the world, the bank remains optimistic about the long-term trend of gold.
The strategists team led by Lena Thomas has lowered their forecast for gold prices at the end of 2026 from $4,650 per ounce to $4,150, and reduced the forecast for gold prices at the end of 2027 from $5,400 to $4,800. Goldman Sachs' baseline scenario assumes that the Fed's recent hawkish stance and the interest rate hike in December will curb investors' concerns about "currency devaluation."
Therefore, it is expected that the demand for gold as a tool to hedge against macroeconomic policy risks – reflected in the demand for call options – will return to its historical average and not rise back to the high levels seen earlier this year.
Strategists say that the current market environment is increasingly similar to that of 2022: at that time, central banks around the world formed strong structural buying forces, but high interest rates suppressed investors' positions, resulting in a relatively modest increase in gold prices.
Central bank gold purchases remain the main support for gold prices. Goldman Sachs expects that the average monthly gold purchase volume will reach 60 tons from 2026 to 2027, compared to only 17 tons before 2022. Seasonally adjusted three-month immediate measurement data shows that the current monthly gold purchase volume is 85 tons.
Strategists wrote in the report: 'We maintain a long-term bullish view, with the core basis being the central banks' strong structural demand for gold purchases, which is also the main driver behind our prediction that gold prices are expected to rise by 15% by the end of 2027.'
The report indicates that central banks in emerging markets, particularly China, still have a gold allocation that is below the reasonable long-term level. Central banks of developed economies have largely not participated in this round of gold purchases, partly due to historical factors; they already hold a large amount of gold reserves.
Strategists further noted: 'The focus of market discussions is gradually shifting from 'whether to allocate gold' to 'where to store gold,' which reflects the widespread concerns about the security of reserve assets and cross-border trust.'
Goldman Sachs expects that if the Federal Reserve begins to cut interest rates in the second half of 2027, gold prices will receive further support. Economists at the firm predict that the interest rate cut cycle will last from the end of 2027 to the beginning of 2028, by which time the pressure of interest rates on gold will be alleviated, and private investor demand will once again combine with central bank purchases of gold.
Strategists suggest that the prospects vary across different investment periods. For Commodity Trading Advisor Funds ( CTA ) and macro hedge funds, the next 3 to 6 months remain challenging due to rising federal fund rates, uncertainty in energy prices, and tighter risk control measures. Additionally, rising oil prices could trigger programmed selling, putting additional downward pressure on gold prices.
The report states that investors who are looking to the long term and wish to share in the benefits of central banks' gold purchases or hedge against potential risks at the end of a policy cycle can see this recent pullback in gold prices as an attractive entry point.
Goldman Sachs also notes downside risks: if the Federal Reserve raises interest rates again in March 2027, delays rate cuts, or raises the terminal interest rate, gold prices will face greater downward pressure; however, under such a scenario, the bank expects gold prices to still reach $4,660 by the end of 2027. If the market once again worries about fiscal sustainability, the demand for gold as a hedge will rise, and gold prices could potentially break through the baseline expectation of $4,800.
