Driven by the dual forces of global foreign exchange reserve diversification and shifting expectations for the Federal Reserve's monetary policy, the gold market is embracing a new pricing logic. According to Goldman Sachs' latest research report, international gold prices are expected to climb to $4,900 per ounce by the end of 2026. Behind this optimistic forecast, robust purchasing power from central banks worldwide and an improving macroeconomic interest rate environment constitute the most critical support.
The report emphasizes that the strategic allocation of gold by sovereign institutions has become a long-term trend transcending economic cycles. To effectively hedge against potential geopolitical and financial risks, central banks are accelerating the diversification of their foreign exchange reserves. Data shows that Goldman Sachs expects global central banks' average monthly gold purchases to reach 50 tons by 2026, a figure far exceeding the long-term average of 17 tons per month maintained prior to 2022. Recent real-time tracking data indicates that the pace of sovereign purchasing is significantly accelerating. On a seasonally adjusted basis for the three months leading up to June this year, the average monthly purchase volume has surged to 100 tons, a substantial increase from 66 tons the previous month. Notably, the People's Bank of China was particularly active in June, emerging as the largest confirmed buyer.
In addition to the solid bottom-line support provided by central bank buying, shifts in macroeconomic interest rate expectations are also injecting momentum into the upward trajectory of gold prices. As market expectations for the Federal Reserve's future rate hike path gradually cool down, investor demand that had been sidelined by high interest rates is beginning to recover. Goldman Sachs economists believe that the cooling trend in inflation will prompt the Fed to keep interest rates stable this year. Against this macroeconomic backdrop of a dovish or stable interest rate path, the holding cost of gold as a non-yielding asset is relatively reduced, naturally enhancing its attractiveness as an investment allocation.
Structural changes in the derivatives market could make the pricing process of gold more complex. As investors increasingly utilize gold call options to hedge against the risk of significant policy shifts, the hedging behavior of market makers will profoundly impact the rhythm of gold price fluctuations. When gold prices rise and hit key strike prices, dealers who have sold options will be forced to buy gold to hedge, creating a combined upward push. Conversely, if gold prices pull back, the reverse closing operations by dealers will accelerate the price decline. Goldman Sachs points out that its $4,900 target price does not yet factor in the additional demand generated by this derivatives hedging, implying that gold prices not only face greater upside potential but also that the intensity of two-way volatility could exceed market expectations.
The potential for private investors to increase their gold allocation in their investment portfolios should not be overlooked. Currently, the proportion of gold in private assets remains at a low level. Recent complex geopolitical situations and concerns over the fiscal sustainability of some Western countries are prompting more private capital to seek safe havens and asset diversification. This influx of funds, driven by the resonance of risk-aversion sentiment and hedging demand, will further reshape the trading ecosystem of the precious metals market.
