Goldman Sachs: Fed rate hikes slow the pace of gold's rise, but do not change the long-term bullish structure.

Goldman Sachs: Fed rate hikes slow the pace of gold's rise, but do not change the long-term bullish structure.

Despite the Federal Reserve's recent interest rate hike and Goldman Sachs economists' prediction of another rate hike in October, Goldman Sachs' global commodities research team remains committed to maintaining its target price of $5,400 for gold by the end of 2027 .

According to TrendFocus, Goldman Sachs, in its latest precious metals research report on September 18, sent a clear signal to the market: tightening policies will only slow the short-term rise in gold prices, and will never end its long-term bull market trend. The market has largely absorbed the pressure of interest rate hikes in the short term, and gold still has room to rise.

The report states that the current global central bank gold-buying spree and the demand for call options driven by concerns about the fiscal sustainability of G10 countries are building an extremely solid floor for gold prices.

Goldman Sachs predicts that the fair value of gold will reach $4,650 per ounce by the end of this year (significantly higher than the current spot price of around $4,350). Furthermore, investors should be highly wary of the risk of a mechanical surge (short squeeze) potentially caused by hedging activities by options market traders, as well as the speculative volatility expected around the time of the US midterm elections.

Limited Impact of Interest Rate Hike: Near-Term Path Slows, End-Point Target Remains Unchanged

Goldman Sachs explicitly stated in its report that despite the Federal Reserve announcing its first interest rate hike in three years, and Goldman Sachs economists expecting an additional rate hike in October, the terminal target price of $5,400 per ounce for gold by the end of 2027 remains unchanged .

Goldman Sachs's rationale is that the impact of tightening monetary policy will primarily manifest as a slowdown in the recent appreciation of gold, rather than a decline in the final price. Goldman Sachs economists predict that the Federal Reserve will implement three interest rate cuts between September 2027 and March 2028, with the final interest rate forecast remaining unchanged at 3.25%-3.5%.

For this reason, Goldman Sachs lowered its year-end 2026 gold fair value forecast from $4,900/oz to $4,650/oz , but this figure is still significantly higher than the current spot price of around $4,350/oz. The report also points out that the anticipated tightening of monetary policy has been largely priced in by ETF demand , meaning that the marginal downward pressure on gold prices from rising interest rates is weakening.

Central bank gold purchases: the core structural driver of the gold bull market

Goldman Sachs' report characterizes continued central bank gold purchases as the primary structural driver of the bullish gold price logic, contributing the vast majority of the expected 23% increase by the end of 2027.

Goldman Sachs' Nowcast model for tracking central bank gold purchases shows that the current pace of central bank gold purchases is approximately 91 tons per month (a seasonally adjusted three-month average), far exceeding the historical average of 17 tons per month before 2022 , representing an increase of more than five times.

Based on this accelerating trend, Goldman Sachs has raised its central bank demand assumptions :

Previous forecast: 50 tons/month in 2026, 40 tons/month in 2027.Latest forecast: Average 60 tons/month in 2026-2027

Goldman Sachs believes that the global central bank reserve diversification demand triggered by the freezing of Russian central bank assets in 2022 is a structural rather than cyclical shift, and recent communications with several central banks have also confirmed their continued strong demand for gold.

Demand for call options remained resilient, providing additional support for gold prices.

The report pays particular attention to the dynamics of the gold call options market. Current open interest in gold call options is approximately three times the historical average , and this level of open interest has shown unusual resilience following the Fed's rate hike and relatively hawkish press conference.

Goldman Sachs interprets this phenomenon as follows: market concerns about the fiscal sustainability of G10 countries continue to support the demand for gold as a macroeconomic policy hedging tool .

It is worth noting that Goldman Sachs' $5,400 target price assumes that the current level of call option positions remains roughly stable (GLD net call option open interest is about 2.3 million contracts), and does not include the additional price amplification effect brought about by a further increase in call option positions in the benchmark forecast.

Goldman Sachs estimates that with the current open interest of approximately 2.3 million contracts, every additional 100 tons of certainty demand would lead to a 6.8% increase in gold prices, compared to only about 2% under normal open interest conditions. This means that market makers' hedging activities could mechanically amplify the rise in gold prices , pushing them significantly beyond Goldman Sachs' baseline forecast.

Tail Risk Warning: Extreme Hawkish Approach and the "Waiting Room" Effect Before the Election

Goldman Sachs explicitly highlighted two scenarios that could trigger a pullback in its research report:

1. Downside risk (extremely hawkish scenario): If the Federal Reserve raises interest rates three more times than expected before the end of the year and hints at higher final interest rates , market doubts about the independence of central banks in developed countries may subside, leading to the partial unwinding of macro hedging demand.

Coupled with net selling by holders of interest rate-sensitive ETFs, gold prices may fall to a low of around $4,070 per ounce in the short term . However, thanks to continued gold purchases by central banks that are constantly raising the price floor, gold prices are expected to gradually recover to around $4,200 per ounce by the end of 2026.

2. Event-driven volatility (the "waiting room" effect of the US midterm elections): Speculative funds often use gold as a safe-haven "waiting room" asset in the face of major events with uncertain outcomes.

Goldman Sachs points out that speculative buying ahead of the US midterm elections could temporarily boost gold prices by about 5% (assuming net managed fund holdings are about 250 tons higher than current levels, reaching the 90th percentile since 2014, or 685 tons). However, once the election results are finalized and funds are redeployed, gold prices could experience a sharp sell-off , a phenomenon that has already occurred after Brexit in 2016 and the US presidential election in 2024.

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