After a 13% pullback in gold prices, Goldman Sachs remains firmly bullish: Central bank gold purchases will accelerate again, and prices are expected to rise to $5,400 by year-end!

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Gold prices have fallen by 13% since the outbreak of the Iran war, but Goldman Sachs still maintains a bullish stance, expecting gold prices to rebound before the end of the year, with a target price of $5,400 per ounce.

Goldman Sachs analysts Lina Thomas and Daan Struyven pointed out in their latest report that the medium-term outlook for gold remains intact. Continued central bank buying and two expected rate cuts by the US Federal Reserve this year will be the core driving forces for a rebound in gold prices.

They also admit that gold prices still face "tactical downside risks" in the short term. If energy supply shocks continue to worsen, gold prices may fall to $3,800 per ounce.

The bank believes that this round of adjustment has been "excessive," with the market excessively focused on inflation pressures while overlooking the drag from slower economic growth. Historical experience shows that concerns over growth will eventually dominate market trends, meaning that current gold prices have already fully reflected and even discounted negative factors.

Reasons for Correction: Forced Position Reduction Combined with Tightening Monetary Policy Expectations

Since the start of the war, gold prices have fallen by a total of 13% in about a month. This sell-off boils down to two main factors: First, sharp stock market declines have forced investors to liquidate gold positions for liquidity; second, the market has started to price in tighter monetary policy expectations.

The two analysts emphasize that this repricing has been "clearly excessive," fundamentally because the market has assigned too much weight to the inflation channel while underestimating the drag effect of slowing economic growth.

They point out that, looking back at historical patterns, concerns about growth will ultimately become the dominant variable driving gold performance, and current price levels already imply significant room for recovery.

Central Bank Buying: Official Sector to Accelerate Re-Entry

Goldman Sachs expects that as price volatility stabilizes gradually in the medium term, central banks will accelerate their gold purchases again, with an average monthly purchase volume of about 60 tons. This forecast is based on the assumption that private sector investment remains at current levels with no additional increase.

There were previous worries that some central banks might sell gold to support their own currencies, but the report firmly rejects this view.

The report points out that Gulf countries, due to their "universally pegged exchange rates to the US dollar," are more inclined to sell US Treasury bonds rather than gold reserves for exchange rate intervention. This judgment means market concerns about a collective reduction in gold reserves by central banks are clearly overstated.

Upside and Downside Scenarios: Two-way Risks under Geopolitical Games

The report also sketches the trajectory of gold prices under two extreme scenarios.

On the downside, if energy supply shocks continue to intensify, gold prices are at risk of dropping to $3,800 per ounce; on the upside, if the Iran conflict drives more capital to accelerate withdrawal from "traditional Western assets" for diversified allocation, gold's upward potential will be quite significant.

The report maintains its gold price target of $5,400 per ounce by the end of 2026, supported by two core factors: continued central bank gold buying and two expected rate cuts by the US Federal Reserve within the year.

The bank believes that although geopolitical tensions have created short-term volatility, from a medium-term perspective, their structural effect of promoting asset diversification will become an important catalyst for gold price increases.

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