Goldman Sachs forecasts gold at $3,700/oz by year-end on rising central bank and ETF demand

Goldman Sachs, a leading global investment bank, has revised its year-end gold price forecast upwards to $3,700 per ounce, according to a Reuters report. 

This adjustment reflects a more bullish outlook on the precious metal, primarily driven by two key factors: stronger-than-anticipated demand from central banks and increased inflows into gold-backed Exchange-Traded Funds (ETFs). 

These trends are further fueled by growing concerns over potential recession risks.

Central banks around the world have been actively accumulating gold reserves, contributing to a significant surge in demand. 

This strategic move is likely motivated by a desire to diversify their holdings and hedge against potential economic downturns. 

Additionally, heightened uncertainty and market volatility have prompted investors to seek refuge in safe-haven assets like gold, leading to increased inflows into gold ETFs.

The looming threat of a recession has further amplified gold's appeal as a store of value. 

Analysts at ING Group said:

Investors often turn to gold during economic downturns due to its ability to retain value and act as a hedge against inflation. 

Central bank gold demand

The investment bank has revised its central bank demand forecast upwards from 70 to 80 tonnes per month. This new projection significantly surpasses the pre-2022 baseline of 17 tonnes and has led the bank to raise its year-end forecast from $3,300 per ounce for gold.

Economists at the bank have given a 45% probability of a US recession occurring within the next 12 months. The bank also observed that recessionary fears have led to increased gold ETF inflows.

Gold prices on COMEX have hit multiple record highs so far this year. Prices have risen more than 23% since the start of January. 

At the time of writing, the most-active gold contract on COMEX was at $3,238 per ounce, slightly lower than the previous close. It had hit a fresh record high of $3,261.55 an ounce earlier on Monday. 

Goldman Sachs' recent analysis indicates that their upwardly revised gold price forecast could still be exceeded in the medium term. 

Further appreciation in gold

Several factors contribute to this potential for further price appreciation. 

Notably, the bank highlights the impact of central bank gold purchases. Should central banks continue to buy an average of 100 tonnes of gold per month, Goldman Sachs' model suggests that the price of gold could surge to $3,810 per ounce by the end of 2025. 

This forecast underscores the significant influence that central bank buying has on the gold market and points to the possibility of a substantial price rally in the coming years.

Meanwhile, in the event of a recession, ETF inflows could return to pandemic levels, potentially driving ETF prices towards $3,880 per ounce by the end of the year, the bank added. 

Goldman Sachs stated that if economic growth exceeds expectations due to reduced policy uncertainty, ETF flows would likely return to their rates-based prediction, with year-end prices closer to $3,550 an ounce, the investment bank said. 

China ETFs

Chinese gold ETF inflows hit a new daily record late last week, according to recent reports.

Bloomberg data shows that nearly 3 billion yuan (US$410M) flowed into China's four major gold ETFs on Thursday, setting a new record.

The Weekly Commodity Futures Trading Commission’s weekly data revealed that managed money net longs in COMEX gold fell for the third week in a row, dropping by 38,088 lots to 138,465 lots as of April 8. 

This indicates that speculative interest in COMEX gold futures remains low, analysts at ING said.