Goldman Sachs Significantly Lowers Gold Price Forecast: Replicating 2022 Dynamics as Central Bank Support Fails to Offset Rate Hike Impact

Author: Dong Jing, Wall Street CN

Goldman Sachs has significantly lowered its gold price forecast. The Federal Reserve's hawkish pivot is suppressing investor demand, and although the central bank gold-buying wave remains strong, short-term upside potential for gold has been significantly compressed.

According to the Zhuifeng Trading Desk, the Goldman Sachs commodities research team released its latest precious metals research report on November 5, significantly lowering the gold price forecast: the year-end 2026 target price is cut from USD 4,650 per ounce to USD 4,150 per ounce, and the year-end 2027 target price is cut from USD 5,400 per ounce to USD 4,800 per ounce.

Goldman Sachs points out that although recent bond market recovery has brought market pricing closer to economists' forecasts for the Fed's terminal rate, the baseline scenario assumes that the Fed's hawkish shift and a December 2026 rate hike will suppress investors' concerns over "currency devaluation." This will cause the macro hedging demand for gold, concentrated in call option demand, to revert to historical averages rather than return to the high levels seen at the beginning of the year.

Goldman Sachs explicitly states that the current gold market landscape is increasingly similar to 2022: central bank gold buying provides strong structural buying power, but higher interest rates suppress investor positions, resulting in more moderate price gains overall.

Meanwhile, Goldman Sachs maintains a constructively positive long-term outlook on central bank gold buying, forecasting an average monthly purchase volume of 60 tons in 2026 and 2027, well above the pre-2022 average of 17 tons per month. However, this structural support is unlikely to offset the suppression of investor sentiment caused by rising interest rates.

On Thursday, international spot gold fell over 1%, touching a low of USD 4,036.82 per ounce. However, over the past two trading days, amid declines in oil prices and US stocks, spot gold has staged consecutive rebounds, briefly pushing above the USD 4,100 per ounce mark.

Reasons behind Goldman Sachs' significant gold target price cut

The direct reason for this downward revision in Goldman Sachs' gold forecast is the profound impact of the Fed's recent hawkish stance shift on market positioning.

Specifically, Goldman Sachs has cut its year-end 2026 gold target price from USD 4,650 per ounce to USD 4,150 per ounce, and its year-end 2027 target price from USD 5,400 per ounce to USD 4,800 per ounce.

In Goldman Sachs' baseline scenario, the Fed will raise interest rates again in December 2026, keeping investor anxiety over "currency devaluation" suppressed. Therefore, the macro hedging demand that previously drove gold's surge, specifically reflected in call option demand, is expected to revert to historical averages rather than returning to early 2026 highs.

On the downside, if the Fed raises rates an additional time in March 2027, accompanied by higher terminal rates and delayed rate cuts, Goldman Sachs estimates that gold prices could drop to just USD 4,660 per ounce by the end of 2027 (further down from the baseline scenario's USD 4,800 per ounce).

Central bank gold buying provides a floor: replicating the moderate volatility pattern of 2022

Despite the lower target prices, Goldman Sachs maintains a constructively positive long-term view on gold, with core support coming from structurally strong central bank buying demand.

Goldman Sachs forecasts that central bank gold purchases will remain at 60 tons per month in 2026 and 2027, well above the historical average of 17 tons per month before 2022. Goldman Sachs' real-time tracking data (GS Nowcast) shows that current central bank purchases have already reached 85 tons per month based on seasonally adjusted three-month moving averages.

However, Goldman Sachs notes that central bank buying can only provide structural support and is unlikely to drive sharp gold price increases on its own in a high-interest-rate environment. This is precisely what makes the current landscape highly similar to 2022.

Goldman Sachs explicitly draws an analogy between the current gold market and 2022: central banks provide strong structural buying, but high interest rates suppress investor positions, leading to more modest net price gains.

Historical experience from 2022 shows that under such a landscape, gold prices do not fall unilaterally but instead exhibit limited upside and increased volatility. Continuous central bank buying provides a bottom support for gold prices, but high interest rates clearly suppress the willingness of Western investors to participate through channels like gold ETFs.

Recent bond market rebounds have already aligned market pricing closer to Goldman Sachs' economists' forecasts for the Fed's terminal rate. However, Goldman Sachs believes that the Fed's hawkish stance will continue to suppress the recovery of macro hedging demand, constraining the upside potential for gold prices.

Turning point expected in 2027: resumption of rate cuts and macro hedging demand

Goldman Sachs economists expect the Fed to implement three rate cuts in the second half of 2027 to early 2028. Once the rate-cutting cycle begins, the constraint on gold prices from interest rates will be lifted. At that point, inflows into ETFs and sustained central bank buying are likely to work in tandem, driving a renewed acceleration in gold's upward trend.

Additionally, Goldman Sachs points to a potential upside scenario: if concerns over fiscal sustainability in Western economies intensify, possibly exacerbated by higher military spending and increased debt burdens on energy-importing nations, and if investors begin to question the willingness or ability of developed-market central banks to tackle inflation, macro hedging demand may return, pushing gold prices beyond the baseline forecast of USD 4,800 per ounce.

The amplification effect of call options: the potential key to nonlinear surges

The report dedicates a section to analyzing the amplification effect of call option demand on gold prices, a mechanism that has grown increasingly important since mid-2025.

Goldman Sachs' simplified gold model indicates that for every additional 100 tons of net committed demand (including Western ETF holdings, net managed fund positions, and central bank purchases), gold prices rise by approximately 2%. However, since mid-2025, the actual volatility of gold prices has exceeded the range explained by these basic capital flows, while call option demand has surged dramatically.

Goldman Sachs interprets this call option demand as reflecting macro policy or "currency devaluation" hedging: investors are paying a premium for tail risks associated with nonlinear gold price spikes.

Goldman Sachs estimates that for every additional 1 million net open GLD call contracts, gold prices rise by approximately 5%.

Goldman Sachs stated that this option-driven amplification effect is currently not factored into baseline price forecasts due to the relatively short historical dataset for high-level call option demand and the associated uncertainty in estimating the relevant effects. However, Goldman Sachs emphasizes that once the Fed ends its rate-hiking cycle and the interest rate constraint dissipates, this mechanism could play a key role again, with dealer hedging behavior turning base demand into much more severe nonlinear rallies.