Goldman Sachs believes that the Federal Reserve's expectation of another interest rate hike in December 2026 will continue to suppress the "currency depreciation hedging" demand of Western investors. The market is repeating the patterns of 2022: although central banks' monthly purchases of 60 tons can provide support, high interest rates severely dampen Western investors' enthusiasm, causing gold prices to stop rising unilaterally and leading to a stalemate where gains are limited and volatility increases. A turning point may come in the second half of 2027, after interest rate cuts are implemented, when ETF funds resonate with central bank gold purchases, and gold prices are expected to pick up speed again.

Goldman Sachs significantly cuts its gold price forecast; the Fed's hawkish stance suppresses investor demand. Despite the strong trend of central banks buying gold, the short-term upside for gold remains significantly constrained.

According to Zuifeng Trading Desk, on November 5th, Goldman Sachs' Commodity Research Team released their latest precious metals research report, significantly lowering their price forecasts for gold/dollar ($XAUUSD.CFD): 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 was lowered 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 for the Federal Reserve's terminal interest rate, the baseline scenario assumes that a hawkish shift by the Fed and a rate hike in December 2026 will suppress investors' concerns about "currency devaluation," thereby causing the macro-policy hedging demand for gold—particularly reflected in the demand for bullish options—to return to historical averages, rather than to the high levels seen at the beginning of the year.

Goldman Sachs clearly stated that the current gold market pattern is increasingly similar to that of 2022: central banks' gold purchases provide strong structural buying, but higher interest rates suppress investors' holdings, resulting in a more modest increase in gold prices.

Meanwhile, Goldman Sachs maintains its long-term constructive outlook on gold/dollar ($XAUUSD.CFD). It expects central banks' average monthly gold purchases to remain at 60 tons from 2026 to 2027, which is significantly higher than the average of 17 tons per month before 2022. However, this structural support is unlikely to offset the negative impact of rising interest rates on investor sentiment.

On Thursday, international spot gold fell by more than 1%, hitting a low of $4,035.91 per ounce. However, in the past two trading days, amid declines in oil prices and U.S. stocks, spot gold has seen a series of rebounds recently, once reaching above the $4,100 per ounce mark.

The target price has been significantly lowered, with the Fed's hawkish shift being the core driving factor.

The direct reason for Goldman Sachs' downward revision of its gold forecast this time is the profound impact of the Federal Reserve's recent hawkish stance shift on market positions.

Specifically, Goldman Sachs has lowered its target price for gold/dollar ($XAUUSD.CFD) at the end of 2026 from $4,650 per ounce to $4,150 per ounce, and has also reduced 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 Federal Reserve will raise interest rates again in December 2026, which will keep investors' concerns about currency devaluation in check. As a result, the macroeconomic policy hedging demand that previously drove a surge in gold prices—specifically, the demand for bullish options—is expected to return to historical average levels, rather than rebounding to the highs seen at the beginning of 2026.

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

Central banks' gold purchases remain strong, but it is difficult for them to support the market alone.

Despite the downward revision of the target price, Goldman Sachs maintains a long-term constructive view on gold/dollar ($XAUUSD.CFD), with core support coming from the structurally strong demand for central bank gold purchases.

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

From a structural motivation perspective:

• Central banks in emerging markets, especially the People's Bank of China, still hold significantly less gold compared to their reasonable long-term allocation targets;
• The motivations for diversifying holdings of the G7 reserve currency—including geopolitical and financial risks—will likely continue;
• It is worth noting that the concern for gold demand and reserve security is spreading beyond the scope of central banks in emerging markets. Although central banks in developed markets already hold large amounts of gold reserves for historical reasons and have largely remained outside of the gold buying spree since 2022, current discussions have shifted from "whether to hold gold" to "where to store gold," reflecting broader concerns about reserve security and cross-border trust.

However, Goldman Sachs pointed out that central bank gold purchases can only provide structural support and are unlikely to drive a significant rise in gold prices on their own in an environment of high interest rates, which is precisely the similarity between the current situation and that of 2022.

The current situation closely resembles that of 2022: central banks providing support, while high interest rates exert pressure from above.

Goldman Sachs explicitly compares the current gold market to the situation in 2022: central banks provide strong structural buying, but high interest rates suppress investors' positions, resulting in a more modest net price increase.

Historical experience from 2022 indicates that under such circumstances, the price of gold does not show a one-way downward trend, but rather exhibits characteristics of limited gains and increased volatility. The continuous buying by central banks has provided support for the gold price at the bottom, however, high interest rates have significantly dampened the willingness of Western investors to participate through channels such as gold ETF.

The recent rebound in the bond market has brought market pricing closer to the forecasts of Goldman Sachs economists regarding the Federal Reserve's terminal interest rates. However, Goldman Sachs believes that the Fed's hawkish stance will continue to suppress the recovery in macro hedging demand, significantly limiting the upside potential for gold prices.

Interest rate cuts expected in the second half of 2027 may become the catalyst for the next round of gold price increases

Goldman Sachs economists expect the Federal Reserve to implement three interest rate cuts from the second half of 2027 to the beginning of 2028. Once the interest rate cut cycle begins, the constraints on gold prices imposed by interest rates will be lifted, and by then:

• Western gold ETF, which is sensitive to interest rates, is expected to see a reactivation of capital inflows;
• Private investors' demand will once again resonate with the structural central bank's gold purchasing demand;
• The combination of these two forces will be more fully transformed into upward momentum for gold prices.

In addition, Goldman Sachs also pointed out a potential bullish scenario: if concerns about the fiscal sustainability of Western economies intensify—possibly due to higher military spending and an increased debt burden for energy-importing countries—and if investors begin to question the willingness or ability of central banks in developed markets to address inflation, the demand for macroeconomic policy hedging could resurge, driving gold prices above the baseline forecast of $4,800 per ounce.

Call option demand: The key mechanism that amplifies gold price volatility

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

Goldman Sachs' simple gold model shows that for every additional 100 tons of net confidence demand (including Western ETF holdings, net managed fund positions, and central bank gold purchases), the gold price rises by about 2%. However, since mid-2025, the actual volatility of gold prices has exceeded the range that can be explained by the aforementioned fundamental capital flows. At the same time, the demand for bullish options has surged sharply.

Goldman Sachs interprets this demand for call options as a reflection of macro policies or a hedge against “currency devaluation”: Investors are paying a premium for the tail risks of the nonlinear surge in gold prices.

At the mechanism level, long options positions can amplify gold price fluctuations in both directions:

• When the gold price approaches the key strike price, market makers who have sold call options need to buy gold to hedge their positions, thereby reinforcing the upward trend;
• When gold prices fall, market makers may close their positions to hedge their exposures, which can further exacerbate the decline.

Goldman Sachs estimates that for every additional 1 million unliquidated long call options on GLD, the gold price rises by about 5%.

Goldman Sachs stated that for the time being, they do not include this option-driven amplification effect in their benchmark price forecasts. The reason is that there is limited historical data on demand for long-term call options at high levels, and there is uncertainty in estimating the relevant effects.

However, Goldman Sachs emphasizes that once the Fed's interest rate hike cycle ends and the constraints on interest rates subside, this mechanism may once again play a key role. At that time, the return of macro policy hedging demand will drive the demand for bullish options back to the high levels seen at the beginning of 2026, and market makers' hedging activities will once again amplify the underlying demand into a more dramatic non-linear increase.

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