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Goldman Sachs believes that the increasing risk of the Fed raising interest rates will lead to a decline in gold prices, so it has lowered its gold target price for this year and next year. However, even if major central banks turn accommodative in the long term, gold prices could strengthen again.
Goldman Sachs Strategists have demotedgold price forecast, citing the possibility that the US Federal Reserve (Fed) may further increaseinterest rate .
In early trading in New York on the 6th, gold futures fell 0.8% to US$4,082 per pound, a sharp decline from the high of more than US$5,500 in January.
MarketWatch reported that Goldman Sachs estimates that gold prices are expected to close at US$4,150 per pound by the end of the year, well below the original target price of US$4,650.
Goldman Sachs commodity strategists Thomas and Stroven issued a report on the 5th, saying that portfolio positioning may be adjusted in response to the Fed’s recent interest rate policy “hawk” changes. The war in Iran has caused energy prices to soar and inflation continues to rise, putting cost-of-living pressure on Americans.
The price of gold and the trend of interest rates usually have an inverse relationship, i.e. when interest rates rise, the price of gold falls.
According to the FedWatch website, traders in the futures market expect a 71% chance of an interest rate hike of 1% (0.25 percentage points) when the Fed holds its decision-making meeting next month.
However, Goldman Sachs expects gold prices to rise again in 2027 and reach US$4,800 per pound next year, which is also lower than the original target price of US$5,400.
Thomas and Stroven noted that the recent surge in the US Treasury market has given rise to market expectations of the Fed raising interest rates close to Goldman Sachs’ forecast. Even though US bond yields have declined, the Fed is still likely to be more aggressive in raising interest rates, which means that even if yields fall, it will not help boost gold prices.
Both strategists believe the most likely scenario is to assume that the Fed will “tighten” and raise interest rates next month, which would help ease investors’ concerns about a potential depreciation of the dollar. When the US dollar rises, gold prices usually fall.
“As a result, we believe general policy safe-haven demand for gold (usually reflected in call-put demand) will return to historical averages rather than return to the high levels seen earlier this year,” the two strategists wrote.
He said the current situation is similar to 2022, when gold prices rose slowly, reflecting strong central bank demand and investor concerns about higher interest rates, leading to a prolonged tug-of-war.
Goldman Sachs economists believe that if central banks of major countries begin to ease monetary policies from late 2027 to late 2028, gold prices are expected to rise again, reflecting central bank purchases and competition with investors. For long-term investors, the recent correction in gold prices could provide an attractive entry point.
Summary FAQ
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Goldman Sachs believes that there is a high probability that the Fed will adopt a tough stance in its recent policy and raise interest rates next month, which will lead to a rise in the US dollar and a decline in gold prices. Additionally, rising interest rates will also weaken the appeal of gold as a safe-haven asset, so it has lowered its forecast.
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Gold futures fell to US$4,082 per pound, well below their highs at the start of the year; FedWatch shows that the market expects a 71% chance of the Fed raising interest rates by another 1 percentage point next month, indicating that interest rate pressures are still very high.
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Goldman Sachs is still optimistic about the long-term trend, believing that gold’s rally could resume if major central banks begin to ease monetary policies from late 2027 to late 2028. For long-term investors, the recent retracement could provide an entry point.
