Goldman stays bullish on gold, but flags downside risk from fewer Fed cuts
Goldman Sachs on Tuesday said fewer interest rate cuts from the US Federal Reserve are the key downside risk to its end-2025 forecast for gold at $3 000/oz not a stronger dollar.
"We push back on the common argument that gold cannot rally to $3 000/oz by end-2025 in a world where the dollar stays stronger for longer," Goldman said in a note.
Gold rose to an all-time of $2 790.15/oz in October and has surged more than 30% this year, driven by central bank interest rate cuts and growing geopolitical tensions.
Goldman expects a 7% increase in gold prices from 125 basis points of additional Fed cuts. However, if the Fed cuts by only an additional 25 basis points, the bank estimates the gold price would rise to only $2 890 per ounce by end-2025, it said.
Gold tends to appreciate on expectations of lower interest rates, because lower rates reduce the opportunity cost of holding a non-yielding asset.
"We disagree that dollar strength will halt central bank gold purchases, which drives 9% of the gold price increase by end-2025 in our base case, because central banks buy gold internationally from dollar reserves," Goldman said.
"We find that the (Chinese yuan) depreciation and broader policy easing our economists expect have a roughly neutral net effect on China's retail gold demand," it also noted.
China's central bank resumed buying gold for its reserves in November after a six-month pause, official data by the People's Bank of China (PBOC) showed on Saturday.
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