Goldman Sachs: Slower Fed Rate Hikes Alter Gold's Uptrend Pace but Don’t Change Long-Term Bull Structure

Despite the Federal Reserve's recent announcement of a rate hike and Goldman Sachs economists expecting another hike in October, the Goldman Sachs Global Commodities Research team remains firmly committed to maintaining the gold's year-end 2027 target price of $5,400 unchanged.

According to Whirlwind Trading Desk, in its latest precious metals research report on September 18, Goldman Sachs sent a clear signal to the market: Tightening policies will only slow down gold’s short-term upward momentum but will never end its long-term bull trend. The pressure from rate hikes in the short term has mostly been digested by the market, and gold still possesses upward potential.

The report states that currently, the structural wave of gold purchases by central banks worldwide and the demand for bullish options triggered by fiscal sustainability concerns among G10 countries are building an extremely solid bottom for gold prices.

Goldman Sachs expects that by the end of this year, gold’s fair value will reach $4,650/oz (significantly higher than the current spot price of around $4,350). In addition, investors should remain highly vigilant regarding the mechanical short squeeze risk that may be triggered by option market dealers' hedging activities, as well as speculative sharp volatility around the U.S. midterm elections.

Limited Impact from Rate Hikes: Slower Near-term Trajectory, Target Unchanged

Goldman Sachs points out in the report that despite the Fed announcing its first rate hike in three years, and Goldman Sachs economists expecting another hike in October, the year-end 2027 gold target price of $5,400/oz remains unchanged.

Goldman Sachs’ logic is that: the impact of monetary policy tightening will mainly be reflected in the slowing pace of gold’s appreciation in the near-term, rather than lowering its terminal price. Goldman Sachs economists anticipate that the Fed will cut rates three times between September 2027 and March 2028, keeping the terminal rate forecast unchanged at 3.25%-3.5%.

For this reason, Goldman Sachs lowered the 2026 year-end fair value forecast for gold from the previous $4,900/oz to $4,650/oz, but this figure is still significantly above the current spot price of around $4,350/oz. The report also points out that the anticipated monetary policy tightening has already been absorbed to a large extent by ETF demand, meaning the marginal suppressive effect of rising rates on gold prices is diminishing.

Central Bank Gold Purchases: The Core Structural Driver of Gold’s Bull Market

Goldman’s report identifies continuous gold purchases by central banks as the main structural bullish driver for gold, contributing the overwhelming majority of an expected ~23% price increase by the end of 2027.

Goldman’s central bank gold purchase real-time tracking model (Nowcast) shows that the current pace of central bank gold buying is around 91 tons/month (seasonally adjusted three-month average), far exceeding the historical average of 17 tons/month before 2022, a rise of over fivefold.

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

• Previous forecast: 50 tons/month in 2026, 40 tons/month in 2027
• Latest forecast: average of 60 tons/month in 2026-2027

Goldman believes that the global diversification of central bank reserves, triggered by the freezing of the Russian central bank’s assets in 2022, is a structural rather than cyclical shift. Recent communications with multiple central banks have also confirmed their continued strong demand for gold.

Bullish Options Demand Remains Resilient, Providing Additional Support to Gold Prices

The report pays special attention to the dynamics of the gold call option market. Currently, gold call option open interest stands at about three times the historical average, and after the Fed’s rate hike and a relatively hawkish press conference, this level has shown unusual resilience.

Goldman interprets this phenomenon as: market concerns about the fiscal sustainability of G10 countries are continuously supporting the demand for gold as a macro hedge.

It is worth noting that Goldman’s $5,400 target price assumes that the current bullish option position remains roughly stable (with about 2.3 million net outstanding GLD call option contracts), and does not include the additional price amplification effect that would come from a further increase in call positions.

According to Goldman’s calculations, at the current 2.3 million contracts level, every additional 100 tons of assured demand would boost the gold price by approximately 6.8%, whereas under normal position conditions this figure is only about 2%. This means market makers’ hedging activity could mechanically amplify gold’s price gains, pushing gold well above Goldman’s baseline forecast.

Tail Risk Warning: Extremely Hawkish Path and Pre-election “Waiting Room” Effect

Goldman Sachs clearly points out two scenarios that could trigger a pullback in the report:

1. Downside risk (extremely hawkish scenario): If the Fed raises rates three additional times before year-end and signals a higher terminal rate beyond expectations, the market’s doubts over the independence of developed country central banks may disappear, leading to some unwinding of macro hedge positions.

Coupled with net selling from rate-sensitive ETF holders, gold prices may drop to around $4,070/oz in the short term. However, thanks to ongoing central bank gold buying lifting the price floor, gold is expected to gradually recover to about $4,200/oz by the end of 2026.

2. Event-driven volatility (the "waiting room" effect of the U.S. midterm elections): Speculative funds often treat gold as a “waiting room” safe haven asset before major events with uncertain outcomes.

Goldman points out that before the U.S. midterm elections, speculative positioning could temporarily boost gold prices by approximately 5% (assuming net managed fund positions are about 250 tons higher than current levels, hitting the 90th percentile since 2014 at 685 tons). However, once the election results are determined and capital is redeployed, gold prices may see sharp selling. This was witnessed after both Brexit in 2016 and the 2024 U.S. presidential election.