Gold prices are anticipated to experience a 6% upswing in the coming year, reaching $2,175 per troy ounce, according to insights from Goldman Sachs Research. Nicholas Snowdon, the Head of Metals in Commodities Research, and analyst Lavinia Forcellese outlined these projections in a comprehensive report. The expected rise is attributed to robust central bank acquisitions of the precious metal and heightened retail demand in emerging markets.
While acknowledging the potential for gold prices to exhibit a range-bound trajectory in the short term due to uncertainties surrounding Federal Reserve interest-rate policies, the analysts underscored key factors expected to limit downside risks. Notably, substantial central bank purchases, particularly from economic powerhouses like China and India, have counteracted outflows from gold exchange-traded funds. These acquisitions have been spurred by geopolitical tensions, exemplified by Russia’s invasion of Ukraine and the ongoing challenges posed by the Covid pandemic.
In the period spanning 2022 to 2023, central banks acquired an average of 1,060 tonnes, a marked increase from the 509 tonnes purchased between 2016 and 2019. This uptick aligns with China’s strategic shift away from US dollars and other nations, including Poland, bolstering their gold reserves.
Goldman Sachs Research analysts expressed confidence that central bank purchases will persistently remain robust, driven by the imperative of reserve diversification by emerging market countries and the prevailing geopolitical tensions.
The report also highlighted the yet-to-rebound investment demand for gold, attributing the recent lack of ETF purchases to already elevated gold-ETF holdings, especially when compared to real (inflation-adjusted) interest rates. The analysts noted that major disruptions, such as the Russia-Ukraine conflict and the Silicon Valley Bank crisis, have historically triggered gold purchases, with holdings remaining elevated despite the surge in long-term US yields.
Speculative positioning in gold by hedge funds is observed to closely track shifts in long-term yields, indicating a heightened sensitivity to macroeconomic policy changes rather than ETF holdings, which continue to experience outflows. The analysts anticipate a potential increase in ETF holdings once the Federal Reserve initiates rate cuts, a move expected as early as May.
Furthermore, the report highlighted the pivotal role of strong retail demand in propelling gold prices higher. The “wealth effect” resulting from rising incomes in emerging markets, particularly in India, is driving consumer demand for gold, notably in the realm of jewelry.
Gold’s stellar performance in 2023 in China, driven by weakened consumer confidence and growth concerns, further exemplifies the metal’s appeal as a “safe haven.” Approximately 40% of survey participants at the Goldman Sachs Global Macro Conference in Hong Kong predicted gold would surpass $2,200 per troy ounce by year-end, citing factors such as the property slowdown and investor concerns in the Chinese equity market as potential catalysts for strong retail demand.
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