By Goldman Sachs analysts reaffirmed their bullish outlook on gold, highlighting that the expected interest rate cuts from the Federal Reserve will likely boost gold prices.
The bank maintains its $2,700/toz target for early 2025, citing a strong relationship between Fed policy and gold prices, along with rising central bank demand.
Despite concerns that the traditional inverse relationship between interest rates and gold has weakened since 2022, Goldman Sachs clarifies that the surge in gold prices is largely driven by heightened central bank purchases, especially from emerging markets.
These countries, wary of U.S. financial sanctions and the growing U.S. debt, have dramatically increased their gold holdings, altering the dynamic between gold prices and interest rates, explains the bank.
However, Goldman points out that “changes in interest rates continue to lead to changes in gold prices,” noting that gold, as a non-yielding asset, becomes more attractive when rates fall.
Analysts argue that the market has already priced in the Fed’s expected rate cuts.
However, Goldman Sachs disagrees, pointing to the gradual increase in ETF holdings backed by physical gold as a sign that the gold market will continue to benefit from the Fed’s easing cycle.
According to the bank’s models, ETF holdings tend to rise gradually for about six months following a rate cut, further supporting gold prices.
In addition to rate cuts, Goldman highlights gold’s appeal as a hedge against geopolitical and financial risks, including U.S. debt concerns and potential sanctions.
With these factors in play, Goldman sees continued upside for gold, reiterating its long trading recommendation and forecasting sustained central bank demand and ETF growth in the coming months.