Goldman Sachs Research forecasts a glittering future for gold prices as central banks continue their precious metal purchases and robust retail demand in emerging markets propels prices upward. Analysts predict a 6% surge in gold prices over the next 12 months, reaching $2,175 per troy ounce. This projection is supported by strong central bank buying, geopolitical tensions, and the wealth effect driving retail demand. However, the near-term outlook may be influenced by uncertainties surrounding Federal Reserve interest-rate policies.
Goldman Sachs highlights the pivotal role of central bank purchases, particularly from countries like China, Poland, and India, in bolstering gold prices. Central banks bought an average of 1,060 tonnes from 2022 to 2023, a significant increase compared to 509 tonnes between 2016 to 2019. Geopolitical tensions, such as Russia’s invasion of Ukraine and the ongoing impact of the Covid pandemic, contribute to the strong demand for gold as a safe-haven asset.
The report emphasizes that investment demand for gold is yet to rebound fully. The recent lack of ETF purchases is attributed to already high gold-ETF holdings, especially concerning real (inflation-adjusted) interest rates. Despite disruptions like the Russia-Ukraine conflict and the Silicon Valley Bank crisis, gold holdings remain elevated. Goldman Sachs Research suggests that speculative positioning in gold by hedge funds is more sensitive to shifts in macroeconomic policy than to ETF holdings.
Historically, major risk-off events and cycles of easier monetary policy have triggered changes in gold ETF holdings. Analysts expect ETF holdings to climb once the Federal Reserve starts cutting rates, possibly beginning as early as May. This anticipation aligns with the historical trend of increased gold demand during monetary easing periods.
Goldman Sachs underscores the impact of strong retail demand on gold prices. The “wealth effect” driven by rising incomes in emerging markets, particularly in countries like India, fuels consumer demand for gold, especially in the jewelry sector. The report notes the rapidly growing cohort of affluent consumers in India as a key driver of jewelry consumption.
In China, gold emerged as one of the best-performing assets in 2023 due to weak consumer confidence and concerns about economic growth. Approximately 40% of participants at the Goldman Sachs Global Macro Conference in Hong Kong anticipate gold surpassing $2,200 per troy ounce by year-end. The slowdown in the Chinese property market and investor concerns about equity markets are expected to drive strong retail demand for gold in China over the coming year.
Goldman Sachs Research paints a bullish picture for gold prices, highlighting the synergy of central bank purchases, geopolitical uncertainties, and robust retail demand. As investors navigate the evolving landscape, the glittering allure of gold remains intact, poised for a 6% surge in the next year. The intricate dance between global events and market dynamics sets the stage for gold to shine brightly in the foreseeable future.