Goldman Sachs interprets "gold price breakthrough": Western investors significantly increased positions, gold price gains may exceed expectations

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Goldman Sachs, which has been bullish on gold for a long time, stated that the rally in gold prices may be far from over, driven by the unexpected surge in purchases by Western individual investors.

According to the news from Chasing Wind Trading Desk, Goldman Sachs analysts Daan Struyven, Lina Thomas, and Alexandra Paulus stated in a recently released research report that the recent inflows into gold ETFs have far exceeded model expectations, indicating that the trend of individual investors reallocating funds from traditional assets such as fixed income to gold may be becoming a reality. This move is seen as a key "major risk" to gold's upside.

Since late August, gold prices have risen more than 10%, breaking strongly out of the trading ranges of the second and third quarters. The report states that the main driver of this round of gains comes from "high-conviction" buyers rather than speculative short-term capital, which increases the sustainability of the current rally.

The bank reiterated that gold remains its “highest-conviction” long commodity recommendation. Goldman Sachs previously estimated that if only 1% of privately held U.S. Treasury funds were reallocated to gold, the price of gold could theoretically rise to nearly $5,000 per ounce. This scenario is becoming more realistic as investor behavior changes.

Unexpected ETF Inflow Mainly Driven by Shift of Private Investors

Goldman Sachs emphasized in its report that one of the key drivers behind the recent breakthrough in gold prices is strong demand from Western investors for gold ETFs.

Goldman's analytical framework divides gold buyers into three categories: Western ETF investors, central banks, and speculators. The recent rise in gold prices primarily reflects that "high-conviction" individual buyers are increasing their purchases.

The report shows that inflows into gold ETFs reached 109 tons in September, while its model predicted inflows of only 17 tons based on interest rate trends. Speculative positions can explain only about 1 percentage point of the gains over the past month or so, and have not increased in the past three weeks.

This "major surprise" suggests that the potential upside risk Goldman had previously warned about—namely, significant fund diversification by individual investors into gold—"now appears to be becoming a reality."

The report further points out that of the approximately 14% price increase in gold since August 26, growth in Western ETF holdings contributed about 3 percentage points.

Goldman Sachs believes that although central bank gold purchase data for September has not yet been released, considering central banks’ seasonal demand patterns, after a quiet summer, central bank demand may pick up again. The bank suspects central bank gold purchases account for a considerable share of recent gains.

Gold Prices May Have Even More Room to Rise

Goldman Sachs believes that its baseline forecast for gold prices is facing increasing upside risks.

There are two reasons for heightened risk: First, there is very little speculative activity in the current rally, indicating a more solid foundation. Second, because the gold market is relatively small (for example, the total value of Western gold ETFs is only about 1.5% of the size of privately held U.S. Treasuries), even a relatively small diversification shift in developed market fixed-income assets could fuel the next round of major gold price increases.

Goldman Sachs concludes that gold has multiple appeals. In addition to private sector asset diversification, gold can provide highly attractive portfolio hedging in "tail risk" scenarios such as slowing economic growth and increasing concerns over macro policies in developed economies—which are unfavorable to traditional stock-bond portfolios.

The bank forecasts that gold prices will reach $4,000/oz by mid-2026 and $4,300/oz by the end of 2026.

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The above highlights are from Chasing Wind Trading Desk.

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