Goldman Pushes Back $3,000 Gold Forecast on Fewer US Rate Cuts
Sunday, Jan 5, 2025 10:23 pm ET
4min read Goldman Sachs Research has revised its gold price forecast, pushing back its $3,000 target due to expectations of fewer US rate cuts in 2025. The precious metal, which has seen a significant rally this year, is now expected to reach $2,900 by the end of 2025, according to the investment bank.
The revision comes as the Federal Reserve is expected to cut interest rates at a slower pace than previously anticipated. Higher interest rates typically make gold, which doesn't offer a yield, less attractive to investors. Conversely, lower interest rates make gold more appealing as an alternative investment. The Fed's slower pace of rate cuts could limit the upside for gold prices, according to Goldman Sachs Research.
However, central bank gold purchases have been a significant factor in offsetting the impact of reduced US rate cuts on gold prices. Since 2022, central banks have been buying gold at a brisk pace, roughly triple the amount prior to that period. This increased buying spree has been driven by concerns about US financial sanctions and the growing US sovereign debt burden. Goldman Sachs Research expects this trend to persist, which will likely push gold prices higher.
Moreover, the relationship between changes in gold prices and changes in interest rates has been reset since 2022 due to sizable central bank purchases of gold bars. Goldman Sachs Research estimates that 100 tonnes of physical demand lifts gold prices by at least 2.4%. This demonstrates the significant impact central bank purchases have on gold prices and their potential to influence the future outlook for the precious metal.
Goldman Sachs Research also expects gold holdings in Western exchange-traded funds to gradually increase as interest rates fall, which would be in line with their historical relationship. Even as central bank buying of gold may be moderating, Western investors are returning to the gold market, according to Goldman Sachs Research. Gold may offer hedging benefits against potential geopolitical shocks, including potential rises in trade tensions, Federal Reserve subordination risk, and debt fears.
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In conclusion, while the reduction in expected US rate cuts may limit the upside for gold prices, central bank gold purchases and the potential for geopolitical tensions continue to support the precious metal's outlook. Investors should monitor the evolving macroeconomic landscape and geopolitical risks to make informed decisions about their gold holdings.
At the time of publication, the author had no positions in any stocks mentioned.
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