Gold has been enjoying fresh record highs, approaching US$3,300 per ounce this week as markets come to terms with changing appetites for risk and loss of faith in key safe haven assets like US Treasuries.
But according to new analysis from Goldman Sachs, it’s a perfect storm of factors that are reaffirming the yellow metal’s case.
As such, the financial giant has upgraded its year-end gold forecast to US$3,700, versus US$3,300, now incorporating strong central bank demand and exchange-traded fund (ETF) inflows in its framework.
“This week’s stress in the US bond market and gold’s rally today and yesterday increase our conviction that gold is uniquely positioned to hedge recession risk,” Goldman Sachs commodities specialists Lina Thomas and Daan Struyven said.
This comes as Goldman’s economists are now assigning a 45 per cent probability to a US rescission in the next year, and this is reflected in its belief that, if a recession did occur, gold ETF inflows could accelerate further.
Notably, the commodities team believes that gold could “plausibly” trade near US$4,500 by the end of the year.
However, this would require “extreme tail scenarios”, characterised by increasing pessimism from markets on the risk of Federal Reserve “subordination” or of changes in US reserve policy, prompting central bank demand to rise to 110 tonnes per month, consistently.
ETF holdings would also need to rebound to pandemic-era levels by the end of 2025, while speculative positioning in gold would hypothetically reach the top of its historical range.
“We view this as a very low-probability event but include it to illustrate the nonlinear upside to gold prices,” Goldman said.
In an update from ANZ Research on Wednesday, the big four bank similarly affirmed its bullishness on the yellow metal.
“Gold will remain on a strong footing, amid heightened uncertainty triggered by the latest tariff announcements,” reads the report, authored by ANZ commodity strategists Soni Kumari and Daniel Hynes.
As such, the team upgraded its gold price forecast to US$3,600 by year-end.
“That said, there are downside risks to our view: a de-escalation in the US-China trade war, a quicker resolution of trade concerns with other trading partners and improvement in the US’ economic outlook could weigh on gold prices,” the strategists added.
But for now, they believe that risk-off purchases for gold haven’t yet been fully realised, and that increasing downside risks for equity markets will see institutional investors increase their allocations to gold.
“The current rally is reminiscent of the 1970–80s, when high inflation, slowing growth and geopolitical tension pushed prices to a high of US$850/oz, which would be equal to around US$3,483/oz in today’s terms,” the ANZ report said.
“While prices are inching towards a similar high, the current backdrop suggests that they are still far away from peak.”
According to ANZ, gold could attract additional safe haven demand if the risk mood sours, particularly given ETF holdings are still 20 per cent lower than their 2020 highs.
A short correction
While markets remain bullish on the yellow metal, gold saw a temporary market correction last week, mimicking the broader risk-off sentiment, following the US’ reciprocal tariff announcement.
“Although a sell-off is to be expected after such an extreme move, concerns about a tariff-induced economic shock led to a swift recovery in gold prices,” ANZ said.
But these turndowns, the bank clarified, are not necessarily cause for worry. History shows multiple instances of gold prices falling alongside risky assets as investors liquidated gold positions to cover equity losses, like during the Global Financial Crisis and in the beginning of the pandemic.
“We see the positivity for gold has been continuing since late 2022 and every price retracement has been shallow. It means the underlying factors behind gold’s bull run are strong, and the latest US tariffs and tit-for-tat responses between the US and China will further strengthen its safe-haven appeal.”
