By Ernest Hoffman, Kitco News
(Kitco News) – Gold prices have risen more than 40% since January 2024, and central bank demand will continue to sustain the rally to new highs well above $3,000 per ounce, according to Goldman Sachs.
In their latest report, Goldman Sachs Research analyst Lina Thomas projects that gold will gain a further 8% in 2025 on its way to a fresh all-time high of $3,100 per ounce. The team previously projected gold prices would only rise to $2,890.
“The increased forecast is underpinned by higher-than-expected demand for gold from central banks, which have been increasing their reserves of the commodity since the freezing of Russian central bank assets in 2022, following Russia’s invasion of Ukraine,” the investment bank wrote.
Along with strong central bank demand, Goldman Sachs Research also anticipates increased purchases of gold ETFs as declining interest rates will boost gold prices and make gold more attractive to investors.
“Those factors may be somewhat offset by speculators reducing their net long positions on gold in futures markets, which is projected by Goldman Sachs Research to weigh on the gold price somewhat,” they warned. “Net long positions are currently very high as concerns of sustained tariffs from the Trump administration drive investors towards safe-haven assets including gold.”
But continued uncertainty surrounding tariffs, geopolitical risk, or fears about ballooning government debt levels may push speculators to increase their long positions. “This scenario would drive the gold price as high as $3,300 per troy ounce by the end of 2025,” Thomas wrote in the report.
The main driver of the higher forecast, however, is central bank purchases, which exceeded expectations once again in December.
“Before the freezing of Russian central bank assets in 2022, the average monthly institutional demand on the London over-the-counter gold market stood at 17 tonnes,” she noted. “In December last year, that figure hit 108 tonnes.”
Thomas estimated that central bank demand alone on the London OTC gold market increased by a factor of five following the freezing of Russian assets. As a result, Goldman Sachs Research has increased its projections for central bank demand in its updated gold price forecast.
Thomas added that consistently higher demand from central banks could raise the gold price by as much as 9% this year.
Goldman Sachs economists are also predicting two interest rate cuts from the Federal Reserve this year, which should provide an additional boost to gold as a non-interest-bearing asset.
“These two dynamics should outweigh the anticipated drag on the gold price from speculators offloading their unusually high net long positions in the yellow metal on futures markets,” they wrote. “Speculators’ net long positions are high because of demand for gold as a safe-haven asset — a phenomenon that could be short-lived if markets become more certain about the economic and political environment.”
The report said that a return to more normal levels of speculator long positions could weigh on gold in the short term, but prices are still likely to trend upward by the end of the year.
Goldman Sachs Research listed several factors, which could cause the yellow metal to either undershoot or exceed their $3,100 year-end price projection.
“On balance, these risks are to the upside — they are more likely to drive the price higher than forecast,” they wrote. “For example, if policy uncertainty remains elevated or sustained concerns about tariffs continue to drive demand for safe-haven assets, the team predicts that speculative gold investing could push prices as high as $3,300 by December 2025.”
“We also see upside risk to our gold price forecast from stronger-than-expected central bank demand on higher US policy uncertainty,” Thomas wrote, adding that if purchasing by central banks hits 70 tonnes per month on average, gold prices could climb as high as $3,200 by the end of 2025.
“Similarly, an increase in concerns over the trajectory of US government debt could drive central banks with large US Treasury reserves to buy more gold, as well as driving speculative positioning and ETF flows higher, which could provide an additional 5% rise in prices by the end of the year, bringing them to $3,250,” the report said.
In terms of downside risks, gold prices could fall short of Goldman’s updated forecast if the Federal Reserve cuts U.S. interest rates less than their analysts expect. “For example, if the Fed keeps rates flat, the team expects the gold price to reach only $3,060 per troy ounce by the end of 2025,” they said.
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