Goldman Sachs predicts gold price rally to continue as emerging markets drive demand

American investment bank Goldman Sachs is forecasting gold prices to climb higher than previously expected, with central banks in emerging markets ramping up purchases.

Goldman Sachs research analyst Lina Thomas is forecasting the precious metal will rise to around US$3,000 per troy ounce by the end of 2025, after hitting multiple all-time highs this year.

The banking firm said concerns about the risk of financial sanctions are likely one of the reasons central banks have increased their buying of gold.

Rates relationship

Ms Thomas noted in a recent investment note that, while gold generally trades closely in line with interest rates, central bank purchases have reset the relationship between rate and price levels since 2022.

Emerging market central bank purchases of gold have risen notably since the freezing of Russian central bank assets in 2022, following the country’s invasion of Ukraine.

Goldman Sachs estimates that 100 tonnes of physical demand lifts gold prices by at least 2.4%.

Election focus

Ms Thomas said that, with the US presidential election in focus, western investors are returning to the gold market.

Goldmans believes gold may offer hedging benefits against potential geopolitical shocks including possible rises in trade tensions, Federal Reserve subordination risk and debt fears.

They expect gold holdings in western exchange-traded funds to gradually increase as interest rates fall, in line with their historical relationship.

“Long-term investors are now interested in holding gold because rates are lower,” Ms Thomas said.

“At the same time, central bank holdings are probably still going to pile up.”

Gold steady

Meanwhile, senior ANZ commodity strategist Daniel Hynes said in his daily wrap that gold was steady overnight with US voting underway.

He noted that uncertainty surrounding the outcome has seen safe haven demand remain strong and added that, while prices have been relatively stable, previous US elections have seen sharp swings in the precious metals market.

“Markets have shifted to pricing in a Trump win, with prospects of higher tariffs and lower taxes being factored in via higher US Treasury yields and a stronger US dollar,” Mr Hynes wrote.

“Meanwhile, the market is also pondering what the Fed will do with interest rates at this week’s Federal Open Market Committee (FOMC) meeting.”

“The extent of the rate cut remains up for debate—we expect the FOMC will cut by 25 basis points as it stays focused on supporting job creation.”