Author: Dong Jing, Wall Street Insight

Goldman Sachs significantly lowered its gold price forecasts. The Fed's hawkish shift suppresses investor demand. Although the wave of central bank gold purchases remains strong, the short-term upside potential for gold is still significantly compressed.

According to news from the Forex Trading Desk, Goldman Sachs' commodity research team released the latest precious metals research report on November 5, drastically cutting its gold price forecasts: the target price for the end of 2026 was lowered from $4,650 per ounce to $4,150 per ounce, and the target price for the end of 2027 from $5,400 per ounce to $4,800 per ounce.

Goldman Sachs pointed out that although the recent recovery in the bond market has brought market pricing closer to its economists' forecasts of the Fed's terminal rate, the baseline scenario assumes that the Fed's hawkish shift and interest rate hikes in December 2026 will suppress investors' concerns over "currency devaluation," leading to a concentration of macro policy hedging demand for gold, reflected in bullish options demand, returning to historical average levels rather than returning to the highs of early this year.

Goldman Sachs made it clear that the current gold market landscape is increasingly similar to that of 2022: central bank gold purchases provide strong structural buying support, but higher interest rates suppress investor positions, resulting in a net effect of more moderate increases in gold prices.

Meanwhile, Goldman Sachs maintains a long-term constructive judgment on central bank gold purchases, expecting the average monthly gold purchases by central banks to remain at 60 tons from 2026 to 2027, far above the average of 17 tons per month before 2022, but this structural support is difficult to offset the suppression of investor sentiment caused by rising interest rates.

On Thursday, international spot gold fell by more than 1%, reaching a low of $4,036.82 per ounce. However, in the past two trading days, as oil prices and U.S. stocks declined, spot gold has seen a continuous rebound, once touching above the $4,100 per ounce mark.

Reasons for Goldman Sachs' Significant Downgrade of Gold Target Price

The direct reason for Goldman Sachs' downgrade of gold forecasts is the profound impact of the Fed's recent hawkish stance shift on market positions.

Specifically, Goldman Sachs lowered the gold target price for the end of 2026 from $4,650 per ounce to $4,150 per ounce and the target price for the end of 2027 from $5,400 per ounce to $4,800 per ounce.

Goldman Sachs' baseline scenario assumes that the Fed will hike interest rates again in December 2026, which will keep investor concerns over "currency devaluation" suppressed. Therefore, the macro policy hedging demand that previously pushed gold prices up is expected to return to historical average levels instead of revisiting the highs of early 2026.

In terms of downside risks, if the Fed raises interest rates again in March 2027, accompanied by higher terminal rates and delayed interest rate cuts, Goldman Sachs estimates that the gold price at the end of 2027 will only be $4,660 per ounce (further down from the baseline scenario of $4,800 per ounce).

Central Bank Gold Purchases Support: Reproducing 2022's Mild Fluctuation Pattern

Despite the downgrade in target prices, Goldman Sachs maintains a long-term constructive view on gold, with core support coming from strong structural demand for central bank gold purchases.

Goldman Sachs predicts that from 2026 to 2027, central bank gold purchases will remain at 60 tons per month, far above the historical average of 17 tons per month before 2022. Goldman Sachs' real-time tracking data (GS Nowcast) shows that the current amount of central bank gold purchases has reached 85 tons per month on a seasonally adjusted three-month moving average basis.

However, Goldman Sachs pointed out that central bank gold purchases can only provide structural support and are unlikely to independently drive significant increases in gold prices in a high-interest-rate environment, which is exactly why the current scenario is highly similar to that of 2022.

Goldman Sachs explicitly compares the current gold market to the situation in 2022: central banks provide strong structural buying support, but high interest rates suppress investor positions, leading to a net price increase that is therefore moderate.

The historical experience of 2022 shows that in this kind of situation, gold prices do not experience unilateral declines but rather show characteristics of limited increases and heightened volatility. The continued buying by central banks provides a bottom support for gold prices, but high interest rates significantly suppress the willingness of Western investors to participate through gold ETFs and other channels.

The recent rebound in the bond market has brought market pricing closer to Goldman Sachs economists' forecasts of the Fed's terminal rate, but Goldman Sachs believes that the Fed's hawkish stance will continue to suppress the rebound of macro hedging demand, significantly constraining the upside potential of gold prices.

The Turning Point Awaits 2027: The Cycle of Interest Rate Cuts and the Restart of Macro Hedging Demand

Goldman Sachs economists expect the Fed to implement three interest rate cuts from the second half of 2027 to early 2028. Once the interest rate cut cycle begins, the constraints of interest rates on gold prices will be lifted. At that time, ETF fund inflows, along with continuous central bank gold purchases, are expected to work together to drive the acceleration of the gold rally.

Additionally, Goldman Sachs pointed out a potential upside scenario: if concerns over fiscal sustainability in Western economies intensify, possibly due to higher military spending and the debt burden of energy-importing countries, and if investors begin to question the willingness or ability of developed market central banks to combat inflation, macro policy hedging demand may re-emerge, pushing gold prices beyond the baseline forecast of $4,800 per ounce.

The Amplifying Effect of Bullish Options: The Potential Key to Non-linear Surges

Goldman Sachs specifically analyzed the amplifying effect of bullish options demand on gold prices in its report, a mechanism that has become increasingly important since mid-2025.

Goldman Sachs' simple gold model shows that every additional 100 tons of net certainty demand (including Western ETF holdings, net managed fund positions, and central bank gold purchases) leads to an approximately 2% increase in gold prices. However, since mid-2025, the actual volatility of gold prices has exceeded what can be explained by this basic flow of funds, while simultaneously, bullish options demand has surged.

Goldman Sachs interprets this bullish options demand as a manifestation of macro policy or "currency devaluation" hedging: investors are paying a premium for the tail risks of gold's non-linear surges.

Goldman Sachs estimates that for every 1 million open contracts of net bullish options in GLD, gold prices increase by approximately 5%.

Goldman Sachs states that it currently does not include this options-driven amplifying effect in the baseline price forecast due to the short historical data on high bullish options demand and the uncertainty in estimating relevant effects. However, Goldman Sachs emphasizes that once the Fed's interest rate hike cycle ends and the constraints of interest rates subside, this mechanism may play a crucial role again, as market makers' hedging behavior will once again amplify basic demand into more dramatic non-linear increases.